United States Dollar Index trades around 99.75-99.70, hangs near three-month low

The US Dollar Index (DXY) dipped to around 98.80-98.75 on Friday, marking a low since May 14 during the Asian trading session. This decline followed a small bounce from the mid-98.00s range. Traders had reduced their expectations for an immediate interest rate increase by the Federal Reserve (Fed) after the release of mild US inflation data the previous week.

The US Treasury Department announced plans to double the size of long-dated debt buyback operations, but this announcement did not have much of an immediate impact on the market due to ongoing concerns about inflation from rising energy prices. Inflation fears, along with geopolitical tensions surrounding the US-Iran conflict, have kept traders cautious and prevented them from making aggressive bearish bets on the US Dollar, which is considered a safe-haven currency.

While the CME Group's FedWatch Tool still suggests a 68% probability of a Federal Reserve rate hike by the end of the year, this does not appear to be enough to drive the US Dollar higher. Analysts suggest waiting for further selling before considering any additional moves that could lead to a depreciation of the US Dollar. The DXY remains bearish in the short term, trading below the 200-day Simple Moving Average (SMA) at 99.16 and important Fibonacci retracement levels.

The recent failure to stay above the 78.6% retracement at 98.52 has left the market vulnerable to further declines, while potential rallies are limited by a cluster of resistance at the 200-day SMA and the 61.8% retracement at 99.22.