Dollar Index Climbs as Fed Rate Hike Expectations Grow
The US Dollar Index has experienced an increase, driven by the higher-than-anticipated September S&P Global Manufacturing PMI, which has intensified expectations for a Federal Reserve rate hike. The CME FedWatch Tool indicates that the likelihood of a 25-basis-point increase in the Federal Reserve’s rate for October has risen to almost 69%. Attention turns to the US weekly Initial Jobless Claims as Federal Reserve officials caution about persistent inflationary pressures. The US Dollar Index, which measures the value of the US Dollar against six major currencies, is experiencing an upward trend for the fourth consecutive day, currently trading around 101.20 during European hours on Thursday.
The Greenback rises amid ongoing hawkish sentiment surrounding the Federal Reserve’s policy outlook. This momentum was bolstered by the latest Flash US S&P Global PMI data for September, which indicated that manufacturing expanded beyond expectations at 52.0, thereby mitigating slight declines in composite and services activity. The CME FedWatch Tool reveals that market expectations for a 25-basis-point Fed rate hike in October have risen significantly to almost 69%, a notable increase from 55.4% just one day prior. Market participants are currently concentrating on the forthcoming US weekly Initial Jobless Claims report, as numerous Fed officials maintain their endorsement of recent rate hikes and caution against ongoing inflationary threats.
Strategists note that the US 10-year Treasury yield “has crossed its 2023 peak (5.02%), resulting in an extension of the uptrend” and is “now challenging the upper boundary of a multi-month ascending channel.” While they acknowledge that the latest leg higher “appears somewhat stretched,” they add that “signals of a meaningful pullback are not yet visible,” suggesting the trend remains intact for now. In the daily chart, the Dollar Index Spot is currently trading at 101.20. The index exhibits a distinct bullish inclination, with prices positioned above the nine-period Exponential Moving Average at 100.43 and the 50-period EMA at 99.85, indicating a favourable underlying trend structure.
The 14-day Relative Strength Index at 72.34 indicates overbought conditions, suggesting that the recent upswing may be extended but not yet reversing. Meanwhile, the increasing FXS Fed Sentiment Index at 148.81 supports a favourable environment for the dollar. On the downside, immediate support is observed at the nine-day EMA, with a more substantial technical floor at the 50-day EMA should corrective pressure persist. As long as the Dollar Index spot remains above these moving average supports, the path of least resistance continues to trend upward, with any pullbacks expected to be viewed as consolidation within the ongoing bullish trend rather than a sustainable peak.
