101.70 area: US Dollar Index holds as falling US bond yields offset Fed hike bets

Falling US bond yields restrain DXY gains, leaving the index struggling to draw meaningful buying interest.
Stronger expectations of a Fed rate hike and geopolitical risks underpin the safe-haven US Dollar.
With next week’s FOMC meeting approaching, traders appear reluctant to take new directional positions.

101.70 is the level around which the US Dollar Index (DXY) is trading in Thursday’s Asian session. The index, which measures the Greenback against a basket of currencies, is finding little momentum. Conflicting market forces are nevertheless keeping it above Tuesday’s low, its weakest level in nearly three weeks.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

With US bond yields retreating further from multi-year highs and expectations strengthening that the Federal Reserve (Fed) will leave interest rates unchanged next week, US Dollar (USD) bulls remain cautious. Even so, markets still assign around a 90% probability to a December increase in borrowing costs by the US central bank, reflecting inflation risks from volatile oil prices. Together with continuing geopolitical uncertainty, those expectations lend support to the safe-haven currency and contain the DXY’s downside.

Diplomatic signals and the prospect of further military action remain in focus in the Middle East crisis. Iranian Foreign Minister Abbas Araghchi said Tehran is ready to give diplomacy another chance, provided it sees strong evidence that the US sincerely wants a solution. In a separate report, The New York Times said the US and Israel have prepared plans for a possible further round of strikes on Iran after the US midterm elections. Against that backdrop, caution is warranted before initiating new bearish DXY positions in anticipation of a deeper retreat from its 18-month high.

Ahead of the outcome of the two-day FOMC meeting on 28 October, next week’s key central bank event, traders appear cautious and may choose to stay on the sidelines. Further guidance on the Fed’s policy trajectory will come from the US Personal Consumption Expenditures (PCE) Price Index and the Advance US Q3 GDP release, both due next Thursday. That policy outlook will be an important driver of meaningful DXY momentum and the direction of its next move.

4-hour DXY chart

200-Period SMA Supports Mildly Bullish DXY Bias

Holding above the 200-period Simple Moving Average (SMA) on the 4-hour chart gives the DXY a modestly bullish near-term bias. At 101.92, however, the 23.6% Fibonacci retracement could restrain the recovery. The index needs to regain that level to resume its uptrend. A sustained breakout would create scope for additional gains towards higher retracement levels beyond the current structure.

Near 101.28, the 38.2% retracement provides the first downside support. The 200-period SMA at 101.00 offers a second floor. A decisive move below that moving average would undermine the emerging bullish bias and leave the index vulnerable to a deeper correction.

(An AI tool assisted in preparing the technical analysis in this article. Learn more.)

7-Day US Dollar Performance

Over the last 7 days, the US Dollar (USD) recorded its strongest performance against the Japanese Yen. The table below sets out its percentage changes against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.74%	-1.47%	-0.19%	-1.38%	-0.62%	-1.76%	-1.38%
EUR	0.74%		-0.78%	0.51%	-0.72%	0.12%	-1.03%	-0.69%
GBP	1.47%	0.78%		1.27%	0.09%	0.88%	-0.35%	0.12%
JPY	0.19%	-0.51%	-1.27%		-1.11%	-0.40%	-1.56%	-1.14%
CAD	1.38%	0.72%	-0.09%	1.11%		0.72%	-0.45%	0.05%
AUD	0.62%	-0.12%	-0.88%	0.40%	-0.72%		-1.15%	-0.73%
NZD	1.76%	1.03%	0.35%	1.56%	0.45%	1.15%		0.37%
CHF	1.38%	0.69%	-0.12%	1.14%	-0.05%	0.73%	-0.37%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, starting with the US Dollar on the left and following its row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote).