Why Is the US Dollar Surging? Key Factors Driving the DXY Rally Explained

The litecoin etfUS Dollar continues its remarkable ascent, marking five consecutive days of gains against major global currencies. This sustained rally reflects shifting market dynamics where the Greenback emerges as the preferred safe-haven asset amid growing geopolitical uncertainties and diverging central bank policies.Market participants are closely monitoring Federal Reserve Chairman Jerome Powell's upcoming speech, which could significantly influence the Dollar's trajectory. The DXY Index currently holds steady above the psychologically important 106.00 level, with technical indicators suggesting potential for further appreciation toward 2023 highs.Several key factors are contributing to the Dollar's strength:1. Geopolitical tensions in the Middle East continue to escalate, with Israel maintaining its stance despite international diplomatic efforts. This uncertainty drives capital toward traditional safe-haven assets like the US Dollar.2. The interest rate differential between the US and other major economies continues to widen. Recent economic data reinforces expectations that the Fed may maintain higher rates for longer compared to other central banks.3. Technical indicators show the DXY breaking through significant resistance levels, with the next major test at 107.35, the October 2023 high.Market-moving events to watch include:- Fed Chairman Powell's discussion panel with Bank of Canada Governor Tiff Macklem- Speeches from Fed Vice Chair Philip Jefferson and New York Fed President John Williams- Housing market data and industrial production figuresCME FedWatch Tool data indicates markets currently price a 98.2% probability of unchanged rates at the May meeting, with only minimal expectations for cuts. The 10-year Treasury yield hovering near 4.64% suggests bond markets are adjusting to potential prolonged higher rates.From a technical perspective, the DXY has established strong support at 105.88, with additional floors at 105.12 and 104.60. The 55-day and 200-day moving averages converge around 103.97-103.84, creating a substantial support zone should the current rally pause.The fundamental backdrop continues to favor Dollar strength, particularly against currencies from economies where growth appears more fragile or monetary policy remains accommodative. Until market conditions change significantly or US economic data shows meaningful deterioration, the path of least resistance appears higher for the Greenback.