The US Dollar Index's sharp decline could influence the Federal Reserve's monetary policy decisions. While the Fed's core mandates are price stability and maximum employment, and exchange rate fluctuations typically do not directly dictate interest rate changes, the current situation is exceptional. The magnitude of the dollar's drop is likely to have caught the attention of Fed officials.
Should Fed Chair Jerome Powell refrain from commenting on the dollar's weakness during his press conference, it might trigger market disappointment. However, President Donald Trump has already signaled his stance. When questioned about potential forex market intervention, he stated, "I want to see it (the dollar) go back to where it should be, that's a reasonable thing; I could make it go up and down like a yo-yo." This has been interpreted as Trump having no intention to intervene and halt the dollar's decline.
From January 19th to now, spanning seven full trading sessions, the Dollar Index has closed higher only once, with the remaining sessions posting significant bearish candlesticks. Plummeting from a high of 99.47 to a low of 95.49, the index has drastically dampened previous market expectations of a "bottoming out and rebounding" scenario.
The root cause of this dollar sell-off appears external rather than internal. Trump's public remarks about acquiring Greenland have stirred discontent among European nations. Consequently, financial institutions are opting to sell dollar-denominated assets in favor of gold, adjusting reserve allocations to reduce financial reliance on the United States. So far, US stock and bond markets have remained relatively stable amidst the dollar's steep fall, suggesting that European selling pressure is primarily focused on swapping dollars for gold, not yet extending to a large-scale dump of US equities and bonds.
Regarding market trends, after consecutive sharp declines, the Dollar Index has broken below the lower boundary of its previous consolidation range at 96.18, with yesterday's low touching 95.49. The breach of the support level formed by the prior double-bottom structure leaves the index with scant technical support to halt its descent. The lower trendline of the depicted channel was also decisively broken on January 26th, indicating a clear acceleration of the downtrend. Adopting a short-term contrarian "buy-the-dip" mentality is not advisable; a rational approach would be to follow the prevailing downward trend.