US Dollar Index holds near 101.70 as Fed hike bets are offset by falling US bond yields

• Falling US bond yields restrain DXY gains, leaving the index struggling to draw meaningful buying interest.
• The safe-haven dollar finds support from firmer expectations of a Fed rate rise and geopolitical risks.
• With next week’s FOMC meeting approaching, traders appear reluctant to take new directional positions.

At around 101.70 in Thursday’s Asian session, the US Dollar Index (DXY) is making little headway. The index, which measures the greenback against a basket of currencies, nevertheless remains above Tuesday’s near three-week low as competing forces influence trading.

US bond yields are continuing their retreat from multi-year highs. Together with increasingly widespread expectations that the Federal Reserve (Fed) will leave interest rates unchanged next week, this is keeping US Dollar (USD) bulls cautious. Even so, markets still assign roughly a 90% probability to a December increase in US borrowing costs, given the inflation risks posed by volatile oil prices. Combined with continuing geopolitical uncertainty, those expectations lend some support to the safe-haven dollar, helping to contain losses in the DXY.

On the Middle East crisis, Iranian Foreign Minister Abbas Araghchi said Tehran was ready to give diplomacy another chance, provided it saw strong evidence that the US sincerely wanted to find a solution. In a separate report, The New York Times said the US and Israel had prepared plans for a possible further round of strikes on Iran following the US midterm elections. These developments call for caution over taking fresh bearish DXY positions in anticipation of a further retreat from its 18-month high.

Ahead of the outcome of the two-day FOMC meeting on 28 October, the key central bank event next week, traders also appear reluctant to commit and may choose to stay on the sidelines. Next Thursday’s releases of the US Personal Consumption Expenditures (PCE) Price Index and the Advance US Q3 GDP reading will also be watched for further indications of the Fed’s policy direction. That outlook will be an important driver of the DXY, helping to establish the direction of its next move.

DXY holds above key average on the 4-hour chart

Technical Outlook Remains Mildly Bullish

Holding above its 200-period Simple Moving Average (SMA) on the 4-hour chart leaves the DXY with a modestly bullish near-term bias. The recovery could, however, meet resistance at the 23.6% Fibonacci retracement level of 101.92, which needs to be regained for the uptrend to resume. A sustained move above that threshold would pave the way for additional gains towards higher retracement levels beyond the current structure.

Initial support lies around 101.28 at the 38.2% retracement level. Below that, the 200-period SMA at 101.00 provides a second line of support. A decisive break beneath this moving average would undermine the emerging bullish bias and leave the index vulnerable to a deeper correction.

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