US Dollar higher with concerns on Fed's policy fueling more upside

• The US Dollar trades in the green against nearly every major G20 peer. 
• Markets reposition for a more restrictive Fed policy in 2025 after the most recent US employment report.
• The US Dollar Index (DXY) surges to 110.00, looking for consolidation at these upper levels.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, edges higher for the fifth straight day and trades around 110.00, at levels not seen since November 2022, on Monday. The move comes after markets catch up with the recent Nonfarm Payrolls report for December, released on Friday, and adjusted to the new narrative that the Federal Reserve (Fed) would be more restrictive and keep rates steady for longer, with chances for several interest rate cuts in 2025 diminishing. 

The US economic calendar is rather calm in the run-up to the Consumer Price Index (CPI) release on Wednesday and Retail Sales on Thursday. At least this Monday will be a very quiet start, with just a few smaller bond auctions on the agenda. Meanwhile, traders can assess their next moves ahead of  President-elect Donald Trump's inauguration next week. 

Daily digest market movers: Counting down 

• At 16:30 GMT, the US Treasury will allocate a 3-month and a 6-month bill. 
• At 19:00 GMT, the December Budget Statement will be released. The deficit is expected to shrink to $62 billion from $367 billion. 
• Equities are taking over the negative tone from Asia. Besides Japan being closed, all other major indices are trading in red numbers. 
• The CME FedWatch Tool projects a 97.3% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on January 20.
• US yields are softening slightly. The 10-year benchmark is at 4.780%, off the fresh nine-month high of 4.798% seen in Asian trading on Monday.

US Dollar Index Technical Analysis: Is it all priced in?

The US Dollar Index (DXY) is in the last seven days before President-elect Donald Trump takes office. With the changing market narrative towards a longer and more restrictive Fed monetary policy going forward, chances that the Fed might not even cut at all in 2025 could be very plausible. In that case, the ramifications for the Greenback would be that the US Dollar Index would surge even further. 

On the upside, the 110.00 psychological barrier needs to be held,  and a consolidation must be seen above it for the rally to move higher. Further up, 110.79 remains the next big upside level to hit. Once beyond there, it is quite a stretch to 113.91, the double top from October 2022.

On the downside, the first downside barrier is 107.35, which has now turned into support. The next level that might halt any selling pressure is 106.52, with the 55-day Simple Moving Average (SMA) at 106.83 reinforcing above this region of support. 

US Dollar Index: Daily Chart