US Dollar Index (DXY) holds above 102.00 as bulls seem hesitant ahead of crucial US data
- DXY attracts some dip-buyers during the Asian session, though it lacks follow-through.
- Oil-driven inflation concerns keep Fed rate hike bets on the table and support the USD.
- Geopolitical uncertainties further benefit the safe-haven buck ahead of crucial US data.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on a modest Asian session uptick on Thursday, though it holds above the 102.00 round figure. Moreover, the index remains close to a two-week high, touched on Wednesday, as traders now look forward to important US macro releases for a fresh impetus.
The Advance US ADP report, along with the Personal Consumption Expenditures (PCE) Price Index, is due to be published later today and will be scrutinized for more cues about the Federal Reserve's (Fed) future policy path amid bets for a December rate hike. Hence, stronger data will reinforce market expectations and push the DXY higher. Meanwhile, the immediate reaction to any disappointment from the market-moving reports is likely to be limited on the back of the Fed's hawkish pause on Wednesday.
In a widely expected move, the US central bank held interest rates steady at the end of the October policy meeting in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a quarter-point hike. Moreover, Fed Chair Kevin Warsh signaled during the post-meeting press conference that the central bank remains vigilant against persistent inflation and geopolitical risks. This, along with persistent geopolitical uncertainties, should act as a tailwind for the Greenback and support the DXY.
In the latest developments surrounding the Middle East crisis, US Vice President JD Vance reportedly sent a letter to Mohsen Rezaei, secretary of Iran's Supreme National Security Council, in an effort to revive peace negotiations. This unfolds as US President Donald Trump threatens to resume military action in the approaching weeks. US officials have told several Middle East countries and regional allies to be prepared for a potential short, intense military campaign against Iran after the November 3 midterm elections.
Meanwhile, regional mediators led by Qatar are working to restart negotiations between the US and Iran to prevent a resumption of the war. Nevertheless, the geopolitical risk premium remains in play, suggesting any corrective pullback in the DXY is more likely to be bought into and remain limited. Bulls, however, might wait for a sustained move beyond the 102.55 horizontal barrier before positioning for the resumption of the recent uptrend from the September low and aiming to test the October swing high.
DXY 1-hour chart
Technical Analysis
The overnight corrective pullback showed some resilience below a confluence – comprising the 100-period Exponential Moving average (EMA) and the 38.2% Fibonacci retracement – around 102.10. This is closely followed by the 38.2% retracement at 102.09, with further demand seen at the 50.0% and 61.8% levels at 101.97 and 101.85, and then the 78.6% retracement at 101.67. On the topside, immediate resistance appears at the 23.6% retracement near 102.25, ahead of the cycle high anchor around 102.49, where a break would open the way for a more decisive bullish extension.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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