Above 102.00: US Dollar Index (DXY) holds as bulls appear cautious before key US data

Asian-session dip-buying gives DXY a modest lift, but further gains prove elusive.
With oil fuelling inflation worries, Fed rate hike expectations remain alive, underpinning the USD.
Ahead of key US releases, geopolitical uncertainty provides additional support for the safe-haven dollar.

The US Dollar Index (DXY) remains above 102.00. During Thursday’s Asian session, the index, which measures the Greenback against a currency basket, is struggling to extend a modest rise. It also stays near the two-week high reached on Wednesday, with traders awaiting major US economic releases for fresh direction.

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

Due later today, the Advance US ADP report and Personal Consumption Expenditures (PCE) Price Index will offer further clues to the Federal Reserve’s (Fed) policy outlook as markets price in the prospect of a December rate hike. Stronger readings would therefore bolster those expectations and lift the DXY. Any initial response to disappointing figures, however, is likely to be contained following the Fed’s hawkish pause on Wednesday.

A 10-2 vote at the end of the October policy meeting left US interest rates unchanged, as widely anticipated. Governor Lisa Cook and Cleveland Fed President Beth Hammack favoured a quarter-point increase. At the subsequent press conference, Fed Chair Kevin Warsh also indicated that the central bank remained alert to persistent inflation and geopolitical risks. Together with continuing geopolitical uncertainty, that stance should underpin the Greenback and lend support to the DXY.

Efforts to revive peace talks are the latest focus in the Middle East crisis. US Vice President JD Vance reportedly wrote to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, seeking to restart negotiations. At the same time, US President Donald Trump is threatening renewed military action in the coming weeks. Several Middle East countries and regional allies have been told by US officials to prepare for a possible brief, intense military campaign against Iran after the November 3 midterm elections.

To avert renewed war, regional mediators led by Qatar are also seeking to restart US-Iran negotiations. The geopolitical risk premium nevertheless persists. This suggests that corrective declines in the DXY are more likely to attract buyers and remain contained. Before positioning for a resumption of the recent advance from the September low towards a test of the October swing high, however, bulls may await a sustained break above the 102.55 horizontal barrier.

1-hour DXY chart

102.10 Confluence in Focus: Technical Analysis

During the overnight correction, the index proved resilient below the confluence around 102.10, where the 100-period Exponential Moving Average (EMA) meets the 38.2% Fibonacci retracement. Just beneath this lies the 38.2% retracement at 102.09. Further buying interest is seen at 101.97 and 101.85, corresponding to the 50.0% and 61.8% levels, followed by the 78.6% retracement at 101.67. For an advance, the first resistance is the 23.6% retracement near 102.25. Beyond that sits the cycle high anchor around 102.49; a break above it would clear the path for a more decisive extension higher.

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

Inflation: Key Questions

Inflation: What Does It Measure?

The increase in the cost of a representative basket of goods and services is measured by inflation. Headline inflation is generally reported as a percentage change both month-on-month (MoM) and year-on-year (YoY). By excluding more volatile components, including food and fuel, core inflation strips out items whose prices can shift with geopolitical and seasonal factors. Economists concentrate on this core measure. It is also the measure targeted by central banks, whose mandate is to maintain manageable inflation, typically around 2%.

Consumer Price Index (CPI): What Does It Track?

Changes in the prices of a basket of goods and services over time are tracked by the Consumer Price Index (CPI). The measure is generally reported as a percentage change month-on-month (MoM) and year-on-year (YoY). Central banks target Core CPI because it removes volatile food and fuel components. A reading above 2% generally leads to higher interest rates, while one below 2% usually has the reverse effect. As higher interest rates support a currency, rising inflation generally strengthens it. Falling inflation typically has the opposite effect.

Inflation and Foreign Exchange: How Are They Linked?

A country’s currency tends to appreciate when inflation is high and weaken when inflation is lower, a relationship that may appear counter-intuitive. The reason is that central banks normally respond to higher inflation by increasing interest rates. Those higher rates draw additional global capital from investors seeking attractive returns on their money.

Gold Prices: How Does Inflation Affect Them?

Historically, investors sought Gold during periods of high inflation for its ability to retain value. They still often buy it as a safe haven during extreme market turmoil, but that pattern does not hold most of the time. High inflation prompts central banks to raise interest rates to counter it. For Gold, higher rates are a negative: they raise the opportunity cost of holding the metal rather than an interest-bearing asset or money in a cash deposit account. Lower inflation, by contrast, tends to support Gold by bringing interest rates down and making the precious metal a more viable investment alternative.