The US Dollar Index (DXY) maintained a weak trajectory during Tuesday's Asian trading session, hovering near 97.00, close to a recent low. Influenced by multiple uncertainties, overall demand for the US dollar continues to soften, with the index falling to its lowest level since September 18, 2025.
One of the core factors dragging on the dollar is the escalating market concern over the Federal Reserve's policy independence. Last week, US President Donald Trump stated that he would soon announce a candidate to replace current Chair Jerome Powell, whose term expires in May this year. This announcement has sparked widespread speculation regarding the future direction of monetary policy.
Market surveys indicate that traders currently view BlackRock executive Rick Rieder as one of the potential front-runners. Investors are concerned that if the new chair adopts a dovish stance, it could prompt a faster pace of interest rate cuts, thereby diminishing the dollar's medium-term appeal.
Tim Duy, Chief US Economist at SGH Macro Advisors, commented, "You cannot completely separate the actions of the next Fed chair from the economic environment or their ability to influence other FOMC members."
Beyond monetary policy uncertainty, US fiscal risks are also pressuring the dollar. The US Congress faces a January 30th funding deadline; failure to reach an agreement on a new budget plan risks a partial government shutdown.
Senate Democratic Leader Chuck Schumer has explicitly stated opposition to a proposal that includes funding for the Department of Homeland Security, complicating the negotiation outlook. Historical experience suggests that government shutdowns often undermine market confidence in dollar-denominated assets in the short term.
Regarding macroeconomic data, markets will focus on Tuesday's US ADP employment change data and consumer confidence index to assess the resilience of the US economy in a high-interest-rate environment. This data may provide some guidance for market sentiment ahead of the Fed's decision.
Market attention will further shift to Wednesday's Federal Reserve policy meeting. The prevailing market expectation is that the Fed will choose to keep interest rates unchanged after three consecutive cuts.
The content of the policy statement and the subsequent press conference will be key to determining the dollar's short-term direction. Should officials signal a hawkish tilt, the dollar's decline might be temporarily contained; conversely, any dovish tendencies could further amplify the downward pressure on the currency.
From a daily chart perspective, the US Dollar Index is currently in a clear downtrend. The index has broken below the lower boundary of a consolidation range that held for several months, with the technical setup indicating bearish dominance.
In terms of the moving average system, the DXY is trading significantly below its 20-day, 50-day, and 100-day moving averages. Furthermore, the short-term averages are accelerating downward, forming a bearish alignment with the medium- and long-term averages. This structure typically indicates a trending decline phase, where any rebounds are more likely to be seen as corrections rather than reversals.
Looking at momentum indicators, the 14-day Relative Strength Index (RSI) has dropped into the 30-35 range, suggesting weakness but not yet extreme oversold conditions. The absence of a clear bullish divergence signal on the RSI implies that downward momentum has not fully exhausted, though a technical rebound or sideways consolidation is possible in the short term.
Observing key price levels, the psychological support level at the 97.00 handle has become crucial. A breach of this level could open further downside, with targets around 96.50 and then the 96.00 area. If these levels are tested, bearish sentiment towards the dollar could intensify further.
On the upside, any technical recovery would face initial resistance in the 97.60-97.80 range, with further resistance near 98.50. This latter area also coincides with the previous range's lower boundary and a confluence of several moving averages, suggesting a significant hurdle for any rebound.
Overall, the daily chart structure for the US Dollar Index indicates it remains in a trend-driven phase of pressure, with limited scope for short-term rebounds barring a clear shift in fundamental signals.
Editor's View: The current dollar movement reflects a market repricing of the US policy environment. Controversy over Fed independence, fiscal negotiation uncertainty, and ambiguous monetary policy prospects collectively undermine the dollar's traditional safe-haven and yield advantages.
From a technical standpoint, the US Dollar Index shows no clear signs of halting its decline. Its behavior near key support levels will determine whether it enters a phase of consolidation and repair in the short term. If the Federal Reserve communicates signals that stabilize expectations in its policy statement, the dollar might experience a period of stabilization. Conversely, if policy uncertainties persist and intensify, the weak trend for the dollar may be difficult to reverse quickly.
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