Due to market speculation that the Fed's policy will diverge from other central banks, the US dollar index rose to 106 on Wednesday, its first time since May 1. An indicator measuring the strength of the US dollar has risen to its highest level since November last year.

As the market seems to see no hope of the Fed's immediate interest rate cuts, it encourages global investors to move cash to the US. Bloomberg's spot dollar index rose 0.4% to 1271.36 on Wednesday, reaching its highest level in nearly 8 months, continuing its upward trend this year.

The US dollar's consecutive second-day outperformance against other currencies also benefited from hawkish speeches by Fed officials. Fed board member Bowman said on Tuesday that hiking was still an option. She believed there were still too many potential risks that could lead to inflation, a comment that caused a stir. A few hours later, Canada, a neighboring country, released hot inflation data, making her argument a reality.

The difference between the Fed and other peers is particularly evident in Japan, where the yen exchange rate has fallen to its lowest level since 1986, raising the risk of Japanese authorities once again intervening in the foreign exchange market.

Kit Juckes, chief forex strategist at French bank Societe Generale, said:"The US economy remains resilient, and it is not clear why recent rate cuts will be made unless the data is weak. Meanwhile, central banks in other countries have started to cut interest rates one after another. In addition, given that political uncertainty will affect the market from now until the end of the year, it is hard to imagine that the US dollar will decline this year."

At the beginning of June, the European Central Bank and the Bank of Canada kicked off a cycle of monetary easing, while the Federal Reserve continued to maintain its highest interest rate in more than 20 years. The upcoming elections in France and the UK in the coming weeks, as well as the US presidential election later this year, have added volatility to the market.

The Japanese yen against the US dollar has been the worst performer this year, depreciating by about 12%, followed by the Swiss franc and Norwegian krone. The euro against the US dollar has fallen more than 3% this year.

According to analysts at Morgan Asset Management, the US dollar will continue to benefit as long as the Federal Reserve maintains borrowing costs at a high level relative to other central banks. However, they also warned that this support may gradually weaken at some point.

Nathan Thooft, senior portfolio manager at Boston-based investment management firm Manulife, said:"We don't think the US dollar will strengthen significantly at the moment, but it's also hard to say whether its rally will reverse significantly in the short term. The current level of the US dollar is damaging global economic growth."

However, the latest data from the Commodity Futures Trading Commission (CFTC) shows that speculative traders have been buying contracts that will benefit from a strong US dollar. In the past two weeks ending June 18, they have increased their holdings of long positions in the US dollar by more than $12 billion.

The final value of first-quarter gross domestic product (GDP) will be released in the United States on Thursday, and personal consumption expenditure (PCE) price index will be released on Friday. Before this, the market trend may remain low volatility. In addition, traders also need to pay attention to the bank stress test report to be released at 4:30 Beijing time the next day. The Fed will analyze whether Bank of America's balance sheet is healthy when the financial market is in trouble.

Fxstreet analysts say the US dollar index has fluctuated for a second day in a row and has broken through the sideways pattern, currently only slightly below the May high. If the upcoming US data again shows strong performance, the US dollar index may further rise. Obviously, recent hawkish speeches by Fed officials have panicked the market, fearing a signal that inflation may rise again.

On the upside, the biggest challenge for long positions is still 106.52, the highest level since April 16 this year. To rebound to 107.20, a level not seen since April 2023, the US dollar index needs to be driven by unexpected US inflation or a sudden shift in Fed hawkishness.

On the downside, the first support level is 105.52, followed by three important moving averages, first the 55-day moving average at 105.2, which is a buffer zone leading to the integer level of 105. If it continues to decline, approaching 104.66 and 104.48, the 100-day moving average and 200-day moving average will provide double-layer protection to limit any further decline. But if this area is broken, long positions may retreat to 104.