DXY strengthens but can it break THIS key level?

The US dollar has gained ground this week, with the Dollar Index rising to retest the previously broken April low near the 97.92 level—an important technical zone. The short-term bias would flip to being bullish if this area breaks.

The greenback’s strength has been underpinned in part by unexpectedly strong economic data. For instance, Thursday’s weekly jobless claims came in at 227,000, below the forecast of 235,000. This marks the fourth consecutive weekly decline and the lowest reading in seven weeks, reinforcing the view that the US labour market remains tighter than anticipated.

Adding to this backdrop are President Trump’s threats of higher tariffs and expansive fiscal plans—described as “big, beautiful” spending and tax initiatives. These factors increase the risk of more persistent inflation.

While the Federal Reserve is still widely expected to initiate rate cuts in September, the rising inflationary pressures could slow the pace of easing thereafter. This shift would likely provide support for the dollar so long as investors don't lose trust in US monetary policy.

By Fawad Razaqzada, market analyst with FOREX.com