United States Dollar Index gains ahead of weekly Initial Jobless Claims data
- US Dollar Index rises as higher-than-expected September S&P Global Manufacturing PMI boosts Fed rate hike bets.
- CME FedWatch Tool suggests that the probability of a 25-basis-point Fed rate hike in October surged to nearly 69%.
- Market focus shifts to US weekly Initial Jobless Claims as Fed officials warn of ongoing inflation risks.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground for the fourth consecutive day and trading around 101.20 during European hours on Thursday.
The Greenback rises amid ongoing hawkish sentiment surrounding the Federal Reserve's (Fed) policy outlook. This momentum was supported by the latest Flash US S&P Global PMI data for September, which showed manufacturing expanding higher than expected at 52.0, helping to offset minor pullbacks in composite and services activity.
CME FedWatch Tool indicates that market expectations for a 25-basis-point Fed rate hike in October surged to nearly 69%, up sharply from 55.4% a day ago. Market participants are now focused on the upcoming US weekly Initial Jobless Claims report, as several Fed officials continue to support recent rate increases and warn against persistent inflation risks.
US 10-year yield extends uptrend as Societe Generale flags stretched move
Strategists at Societe Generale note that the US 10-year Treasury yield “has crossed its 2023 peak (5.02%), resulting in an extension of the uptrend” and is “now challenging the upper boundary of a multi-month ascending channel.” While they acknowledge that the latest leg higher “appears somewhat stretched,” they add that “signals of a meaningful pullback are not yet visible,” suggesting the trend remains intact for now.
Technical Analysis: DXY rises due to prevailing bullish bias
In the daily chart, Dollar Index Spot trades at 101.20. The index holds a clear bullish bias as price stands above both the nine-period Exponential Moving Average (EMA) at 100.43 and the 50-period EMA at 99.85, suggesting a supportive underlying trend structure. The 14-day Relative Strength Index (RSI) at 72.34 shows overbought conditions, hinting that the latest upswing may be stretched but not yet reversing, while the rising FXS Fed Sentiment Index at 148.81 reinforces a pro-dollar backdrop.
On the downside, immediate support is seen at the nine-day EMA, with a deeper technical floor at the 50-day EMA if corrective pressure extends. As long as the Dollar Index spot holds above these moving average supports, the path of least resistance remains to the upside, with any pullbacks likely to be treated as consolidation within the prevailing bullish trend rather than a durable top.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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