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Optimistic FOMC Preview: Fueling Dollar Index (DXY) Rally with Hawkish Policy

by Onuraag Das   ·  September 19, 2023   ·  


The Federal Open Market Committee (FOMC) meeting, often shrouded in anticipation and speculation, has become the epicenter of discussions within financial circles. As we stand on the precipice of the upcoming FOMC Preview, scheduled for September 20th, the financial world is holding its collective breath, scrutinizing the central bank’s every move and statement. This scrutiny is particularly intense when viewed in the context of the Dollar Index. In this comprehensive article, we will navigate through the labyrinthine intricacies of the FOMC Preview, understanding its significance, and uncovering how it could potentially fuel the ongoing Dollar Index Rally, thanks to a hint of hawkish policy.

FOMC Preview and Expectations

The term FOMC Preview is a clarion call to anticipation, encapsulating the collective gaze of investors and market analysts on the upcoming central bank meeting. This event carries immense significance due to its pivotal role in shaping monetary policy in the United States. At the heart of the matter lies the question of what the FOMC has in store for the financial markets.

Expectations surrounding the forthcoming FOMC meeting are deeply rooted in the possibility of a “hawkish pause.” But what does this concept entail, and why does it hold such sway over the Dollar Index? A hawkish pause implies that the central bank might momentarily halt its series of interest rate hikes. However, this pause is not without vigilance; it comes with a watchful eye on the potential for future tightening, should economic conditions demand it.

FOMC Preview.
Source: CME FedWatch Tool

The markets have been keenly attuned to every nuance of the FOMC’s communications and actions. The central bank’s decisions ripple through financial markets, affecting everything from currency exchange rates to bond yields and equity prices. As the FOMC Preview approaches, the stakes have never been higher.

The Dollar Index (DXY) and Its Recent Performance

The dollar index rally has been a prominent trend in recent times, capturing the attention of investors worldwide. This rally is not a mere coincidence; it’s the result of a complex interplay of factors, including robust economic data and the anticipation of a more stringent monetary policy.

The Dollar Index is more than just a numerical representation of the U.S. Dollar’s strength; it serves as a mirror reflecting the broader economic and geopolitical landscape. Comprising a basket of major global currencies, it stands as a testament to the U.S. Dollar’s standing on the world stage. A strong Dollar Index can signal confidence in the U.S. economy, while a weak one can raise concerns.

Possible Scenarios and Their Impact

As the FOMC Preview looms on the horizon, market participants are closely monitoring two primary scenarios:

  1. Hawkish Pause with Dollar Strength: Should the FOMC lean towards a hawkish pause, emphasizing concerns about inflation and the need to keep the door open for future rate hikes, this could infuse fresh vigor into the Dollar Index. Investors may interpret this as a signal of the central bank’s unwavering commitment to maintaining economic stability.
  2. Hawkish Pause with Caution: Conversely, the FOMC may signal a pause while simultaneously expressing caution about the unpredictable economic terrain. Such a scenario could trigger a transient surge in risk assets, potentially eroding the strength of the Dollar Index. However, the absence of a resolute commitment to conclude the hiking cycle could potentially limit the impact on the Dollar.
FOMC Preview.
Source: DFX

These scenarios exemplify the tightrope the FOMC must walk. Striking the right balance between addressing inflation concerns and avoiding economic overheating is a delicate task that can sway markets.

Technical Outlook for the Dollar Index (DXY)

FOMC Preview.

From a technical standpoint, the Dollar Index (DXY) has demonstrated remarkable resilience and upward momentum. This resilience can be attributed to the relative strength of the U.S. economy when compared to its global counterparts. The Dollar Index Rally is not solely a reflection of market sentiment; it’s also a testament to the economic fundamentals underpinning the U.S. Dollar.

FOMC Preview.
Source: DFX

As the FOMC meeting approaches, it becomes imperative to delve into the technical indicators that shape our understanding of the Dollar Index’s performance. Key support and resistance levels play a critical role, guiding traders and investors in their decision-making processes. Furthermore, the 50, 100, and 200-day moving averages (MAs) provide a deeper insight into the Index’s trajectory.

Factors Beyond the FOMC Meeting

While the FOMC Preview commands the spotlight, it’s essential to recognize that several factors exert influence over the performance of the Dollar Index. These factors extend far beyond the scope of a single central bank meeting. Global economic trends, oil prices, and consumer behavior all play integral roles in shaping the Dollar’s fortitude. The intricate interplay between these variables creates a dynamic environment within which the Dollar Index operates.

  1. Global Economic Trends: The health of the global economy has a direct impact on the Dollar Index. A robust global economy can drive demand for the U.S. Dollar as a safe haven asset, while economic uncertainties can lead to fluctuations.
  2. Oil Prices: Oil prices have a significant influence on the Dollar Index. A rise in oil prices can trigger concerns about inflation and economic stability, potentially strengthening the dollar.
  3. Consumer Behavior: Consumer sentiment and spending habits play a role in shaping the Dollar Index. Changes in consumer behavior, driven by factors such as job growth and wage levels, can impact the dollar’s performance.


In conclusion, the upcoming FOMC Preview scheduled for September 20th stands as a pivotal event with far-reaching implications for the Dollar Index (DXY) and broader market sentiment. The potential for a hawkish pause, coupled with lingering concerns regarding inflation and economic projections, has kept investors on high alert.

As we await the FOMC’s decisions and statements, it is crucial to remain well-informed and adaptable in these dynamic times. The outcome of the FOMC Preview may set the tone for the ensuing months, making it a critical juncture in the ongoing economic recovery. Traders and investors must maintain a vigilant watch over evolving economic conditions and the central bank’s stance as they navigate the ever-shifting currents of the Dollar Index and the broader financial markets.

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