USD Faces Pressure: Fed Policy & Credit Spreads Impact Forex Markets

The US dollar index is experiencing heightened volatility as traders navigate concerns over Federal Reserve policy direction and widening credit spreads. Rising interest rates and expanding credit spreads pose significant risks to equity markets, potentially triggering safe-haven flows that could strengthen the dollar against risk-sensitive currencies. Market participants are closely monitoring this week's key economic data releases, including US manufacturing PMI and services data, which will provide crucial insights into the Fed's next policy moves. Technical analysis shows the DXY testing resistance at 105.50, with support established at 104.20. The interplay between stock market performance and dollar strength remains critical, as equity weakness typically drives investors toward USD safe-haven positions. Traders should prepare for increased volatility across major pairs, particularly EUR/USD and USD/JPY, as credit market stress could accelerate risk-off sentiment and dollar demand.