US Dollar resides near five-day low as traders gauge progress in trade talks, Fed policy

• The US Dollar Index trades flat near a five-day low at 99.20.
• Traders are assessing headlines on China and the US, whose officials are set to meet this weekend in Switzerland.  
• The US Dollar Index remains stuck in a wait-and-see range as the Federal Reserve rate decision looms.

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades broadly flat on Wednesday at around 99.40 after printing a fresh five-day low on Tuesday. Traders are assessing news about progress between China and the US regarding trade talks and brace for the Federal Reserve (Fed) interest-rate decision later this Wednesday. Not much is expected from this rate decision as markets almost fully price in that the Fed will keep rates stable despite pressure from US President Donald Trump to cut them. 

Meanwhile, on the geopolitical front,  tensions are heating up between Pakistan and India. Pakistan said it shot down five Indian airplanes and took soldiers prisoner in retaliation for Indian military strikes early on Wednesday. The prospect of a war between the nuclear-armed neighbors should see some safe haven inflow towards US bonds or Gold, for example, although any added haven demand is, at this stage, being canceled out by the trade talks optimism, Bloomberg reports.

Daily digest market movers: Fed to keep policy steady

• US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel to Switzerland for trade talks with the Chinese delegation, led by Vice Premier He Lifeng, this weekend. Both parties are seeking to de-escalate a tariff standoff that has threatened to hammer both economies. In this first phase, no trade talks as such will be held, though rather talks to de-escalate the situation, according to Bessent on Fox News.
• At 18:00 GMT, the Fed rate decision will be released with a joint statement. Expectations are for the Fed to maintain its policy rate at the 4.25%-4.50% range.
• At 18:30 GMT, Fed Chairman Powell will take the stage to comment on the recent policy rate decision and take questions from reporters in the room. 
• Equities are quite positive, although no real rallies are materializing. Gains are kept to a minimum, with a roughly 0.5% advance for European and US indices. 
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June's meeting at 28.3%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 74.2%.
• The US 10-year yields trade around 4.33%, steady for now after a four-day straight rally higher. 

US Dollar Index Technical Analysis: No reaction, nothing!

The US Dollar Index (DXY) is not really moving or responding to the surprise headline and communication from the China and US administrations on trade talks set to start on Saturday. Markets probably quickly read through the headlines and behind the news that these talks are instead to be seen as two desperate parties joining each other to see how to ease the impacts on the economy. This also shows how the US economic performance is probably starting to struggle because it lacks China's supplies, which might filter through in another leg lower in the DXY once US economic data confirms it. 

On the upside, the DXY's first resistance comes in at 100.22, which supported the Index back in September 2024, with a break back above the 100.00 round level as a bullish signal. A firm recovery would be a return to 101.90, which acted as a pivotal level throughout December 2023 and again as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024.

On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.

US Dollar Index: Daily Chart