DXY climbs to $100.62 as central bank divergence drives dollar higher

The dollar index climbed to $100.62, breaking above $100 for the first time since 2023, as traders priced in a hawkish Federal Reserve against a slowing euro zone where the ECB delivered a measured 25-basis-point rate hike. The greenback extended gains after the European Central Bank raised rates for the first time since 2023, though the impact has been uneven across the bloc and growth momentum has faded.

"The dollar is benefiting from the U.S. economic recovery, deep capital markets and its reserve-currency status, while Europe is struggling with the energy crisis and the U.K. faces its own domestic challenges," said Arslan, a finance MBA and analyst specializing in behavioral finance. "The Fed's upcoming rate decisions and the ECB's measured rate increase are key developments for the dollar and euro."

The DXY broke through the upper resistance of its ascending channel on the four-hour timeframe, with consecutive higher highs forming from the $99.17 swing low. The relative strength index sits above 55, supporting the bullish bias, while the volume profile shows the $99.50 to $99.80 range as a dynamic support zone. Fibonacci projections point to upside targets at $101.05 to $101.42.

The breakout comes as the US-Iran truce remains intact beyond nine weeks, removing a key source of geopolitical uncertainty that had supported the dollar's safe-haven premium. Meanwhile, the ECB's rate increase has done little to bolster the euro as the impact of tighter policy has been uneven across the bloc and growth has slowed.

Fed's Hawkish Stance Widens Rate Differential

The Federal Reserve held its benchmark rate at 3.50 percent to 3.75 percent, but the updated dot plot revealed a significantly higher rate path. The median projection for the federal funds rate at end-2026 rose to 3.8 percent from 3.4 percent, while the 2027 projection climbed to 3.6 percent from 3.1 percent. The Fed now expects PCE inflation to reach 3.6 percent by the end of 2026, with core PCE at 3.3 percent — up sharply from the previous estimate of 2.7 percent.

May retail sales rose 0.9 percent month over month, nearly double the 0.5 percent consensus estimate, reinforcing the case for the Fed to maintain its restrictive stance. Excluding autos, sales gained 0.8 percent against a 0.5 percent forecast. The strong consumer spending data gives the Fed little reason to consider rate cuts in the near term.

Euro and Pound Diverge as Central Banks Take Different Paths

EUR/USD traded at $1.1476, below its 50-period moving average around $1.1580, with the four-hour chart showing a series of lower highs as sellers maintained control. The RSI fell below 45, indicating negative momentum, while the volume profile identified the $1.1550 to $1.1580 range as an area where buyers lost control. Support sits at $1.1430 to $1.1400, confirmed by multiple Fibonacci levels.

GBP/USD fared better, advancing to $1.3239 as the pair defended support at the $1.3170 ascending trendline. The four-hour chart shows long tails on candlesticks rejecting resistance at the 50-period moving average near $1.3320, with higher lows maintained within the channel. The RSI near 50 implies neutral momentum, with support at $1.3200 and resistance at $1.3320 to $1.3360.

The Bank of England is widely expected to keep interest rates unchanged at its upcoming decision, with services inflation remaining sticky in the U.K. and mixed evidence on economic performance. The pound is particularly vulnerable to any change in forward guidance, as the BoE balances the need for tighter policy against the threat to the economic outlook.

The broader macro backdrop favors the dollar. Persistent U.S. inflation keeps near-term rate cuts in check, while fiscal deficits and safe-haven demand during periods of geopolitical uncertainty provide additional support. For the euro, the ECB's tightening cycle is colliding with slowing growth, keeping rate increase expectations in check. For the pound, the BoE's decision and the U.K.'s fiscal stance will remain in focus.

This article is for informational purposes only and does not constitute investment advice.