United States Dollar Index gains support amid hawkish Fed policy stance

• US Dollar Index strengthens as the Fed signals another potential rate hike before year-end.
• The CME FedWatch Tool indicates an 89.2% probability of a December rate increase.
• Fed's Barkin views the balanced labor market and steady consumer spending as signs that ease recession fears without fueling inflation.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground for the third consecutive day and trading around 100.70 during Asian hours on Wednesday.

The Greenback gains ground on the back of a hawkish policy outlook from the Federal Reserve (Fed). Following a recent 25 basis point increase that brought the benchmark interest rate target to the 3.75%–4.00% range, Fed policymakers have signaled that another rate hike remains on the table before the end of the year.

Financial markets are actively pricing in this trajectory, with the CME FedWatch Tool showing nearly an 89.2% probability of a December rate increase. Traders turn their focus toward the preliminary US PMI data scheduled for release later on Wednesday.

TD Securities offers early take on September US inflation path

According to TD Securities, the August CPI release has prompted an “early look into our September projection” that is still subject to refinement. The economists stress that their current view is based on “multiple assumptions which may evolve as the month progresses and more data becomes available — particularly for volatile segments like gasoline prices, hotel rates, and airfares.” Against that backdrop, they anticipate headline CPI will be lifted by an almost 8% jump in gasoline and firmer food prices, while core CPI is expected to slow, with services inflation mean-reverting and supercore easing after August’s surge.

Barkin downplays labor tightness but keeps Fed in hawkish territory

Barkin’s remarks paint a picture of a labor market that is balanced rather than overheated, with consumer balance sheets still in solid shape and spending expected to persist as long as jobs remain healthy, which tempers immediate recession fears but also downplays inflationary labor pressures relative to the historical average. The comparison to a 1990s-style mid-cycle adjustment suggests a preference for a soft-landing narrative, yet the warning that the Fed cannot rely on markets to keep rates sufficiently restrictive underscores a cautious stance on financial conditions and inflation, keeping the tone modestly hawkish despite the FXS Speechtracker score of 5.6/10 being almost unchanged compared to the established baseline of 5.7/10. The skepticism that current productivity gains are mostly AI-driven further signals limited confidence in a rapid supply-side disinflation story, reinforcing a view that policy cannot lean too heavily on structural tailwinds.

The FXS Fed Sentiment Index fell by 2.11 points to 148.39, indicating a mild pullback in perceived hawkishness even as the overall stance remains firmly above the neutral 100 threshold. This configuration suggests that, while the speech slightly softened the hawkish tone captured by the FXS Speechtracker, markets should still treat the Fed as solidly in hawkish territory, with policy risks skewed toward keeping rates elevated rather than delivering rapid cuts.

Collins’ hawkish tilt reinforces Dollar support as inflation risks rise

Fed’s Collins delivered a notably more hawkish tone, with the FXS Speechtracker score at 8.1/10, clearly above the established baseline of 6.6/10. The emphasis on an “increased likelihood” that inflation stays “notably above 2%,” alongside a stronger labor market, signals a firm preference for keeping policy restrictive and supports expectations for further tightening or a prolonged high-rate stance. The remark that a “somewhat more restrictive” federal funds rate is needed to ensure inflation durably returns to target underlines a bias that is supportive for the Dollar and broadly negative for risk-sensitive assets.

Technical Analysis: DXY gains on prevailing bullish bias

In the daily chart, Dollar Index Spot trades at 100.70. The near-term bias is bullish as price holds above both the nine-day and 50-day Exponential Moving Averages (EMAs), with the short-term EMA reinforcing underlying demand above the medium-term EMA. The 14-day Relative Strength Index (RSI) at 67.72 approaches overbought territory, suggesting strong but potentially stretched upside momentum, while the elevated FXS Fed Sentiment Index at 148.39 hints that policy expectations continue to support the dollar’s advance.

On the downside, initial support is located at the nine-day EMA around 100.15, where a pullback could find first demand before deeper losses test the 50-day EMA near 99.80. As long as the index holds above these clustered moving average supports, bulls are likely to retain control, though the proximity of the RSI to the overbought band warns that upside progress may slow and consolidate rather than extend in a straight line.

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