United States Dollar Index retreats from YTD top; eyes 102.00 as bullish bias persists

• DXY extends the previous day’s modest pullback from the vicinity of an 18-month high.
• The hawkish Fed, elevated US bond yields, and geopolitical risks could support the USD.
• The constructive technical setup backs the case for the emergence of some dip-buying.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, drifts lower during the Asian session on Thursday and extends the previous day's modest pullback from the vicinity of its highest level since April 2025. The index, however, holds above the 102.00 mark. Moreover, the supportive fundamental backdrop backs the case for the emergence of some dip-buying at lower levels, warranting caution for aggressive bearish traders.

Minutes of the September 15-16 FOMC meeting published on Wednesday showed that the committee voted unanimously to raise the federal funds rate target range. Furthermore, most officials expect that another rate increase would likely be appropriate by the year-end to combat persistent inflation. According to the CME Group's FedWatch Tool, traders are still pricing in around an 80% chance that the Federal Reserve (Fed) will raise borrowing costs in December. Adding to this, worries that inflation may prove more stubborn than expected amid volatile energy prices keep US bond yields elevated near multi-year highs.

Dollar strength underpinned by energy dynamics and US growth outperformance

Strategists at Brown Brothers Harriman highlight that “persistently high energy prices keep risks to inflation, policy rates, and benchmark bond yields skewed to the upside, while favoring energy exporters’ currencies and USD over energy importer’s currencies.” They add that “US growth outperformance and strong foreign appetite for US securities give USD an added boost,” reinforcing the bank’s constructive stance on the Dollar against energy-importing peers.

Moreover, uncertainties stemming from the ongoing conflicts in the Middle East might continue to act as a tailwind for the safe-haven US Dollar (USD). In the latest developments, the Pentagon reportedly instructed US Central Command (CENTCOM) several days ago to conclude preparations for resuming major combat operations in Iran as US President Donald Trump weighs a specific date for launching strikes. The US and Israeli sources said that it could happen before the US midterm elections and possibly the Israeli elections a week earlier. This keeps geopolitical risk premium in play and should support the DXY.

Hence, strong follow-through selling is needed to confirm that the index has topped out in the near-term and position for any meaningful corrective decline. Traders now look forward to the release of the usual Weekly Initial Jobless Claims data from the US, which, along with speeches from influential FOMC members, might provide some impetus to the USD. Furthermore, the incoming geopolitical headlines might continue to infuse volatility across the global financial markets, which should contribute to producing short-term opportunities around the DXY. Nevertheless, the bias seems tilted firmly in favor of bulls.

DXY daily chart

Technical Analysis

The DXY maintains a bullish undertone above the 101.75-101.65 resistance breakpoint, which might continue to protect the immediate downside. Meanwhile, the Relative Strength Index (14) at 70.67 remains in overbought territory, hinting that the index may be vulnerable to a pause or mild corrective pullback rather than a sustained reversal. Nevertheless, the constructive setup suggests that buyers could continue to defend shallow pullbacks, keeping the broader constructive tone intact.

(The technical analysis of this story was written with the help of an AI tool. Know more.)