United States Dollar Index gathers strength above 102.00 on safe-haven flows
- US Dollar Index strengthens to around 102.20 in Monday’s early Asian session.
- US economy created 29,000 jobs in September; the Unemployment Rate jumped to 4.2%.
- Weaker-than-expected US jobs data tempers Fed rate hike expectations.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 102.20 in the early Asian trading hours on Monday. The DXY holds positive ground amid safe-haven flows. Traders await the US ISM Services Purchasing Managers Index (PMI) report on Monday for fresh impetus.
The rise in US Treasury yields, along with the ongoing conflicts in the Middle East and fiscal worries in France boost the safe-haven flows, supporting the US Dollar against its rivals. "The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe-haven flows into the greenback," said Matthew Ryan, head of market strategy at Ebury.
Nonfarm Payrolls (NFP) in the United States (US) increased by 29K in September, compared to the 133K increase seen in August, the US Bureau of Labor Statistics (BLS) revealed on Friday. This figure came in below the market consensus of 90K. The Unemployment Rate rose to 4.2% in September from 4.1% in August.
Traders weighed receding odds of a Federal Reserve (Fed) rate hike this month after soft US jobs data. Markets are now pricing in roughly an 82.3% odds of the US central bank holding rates steady in October, compared to 35.8% a week earlier, according to the CME FedWatch tool. They still expect a hike in December and another two in the first half of 2027.
US services momentum seen cooling as TD Securities flags softer ism print
According to TD Securities, the US services sector is likely to show signs of cooling in the latest ISM release, with the bank expecting that "the services index likely reversed its unexpected August gain, falling to a below-consensus 54.0 in September." Analysts at the bank highlight that "recently strengthening new orders and activity components" are now expected "to lead the reversal," even as "employment likely improved for a second consecutive report — though it is expected to stay in contraction." TD Securities also cautions that "prices paid will also garner attention after rising in Jul-Aug," keeping cost pressures in focus for the services sector.
Logan’s hawkish tilt lifts Fed expectations and supports the Dollar
Fed’s Logan delivers a notably more hawkish message, with the 9.2/10 FXS Speechtracker score standing well above the 8.1/10 historical average, signaling a stronger tightening bias relative to the established baseline. The emphasis that higher yields may reflect increased term premiums, potentially reducing the need for further tightening, is overshadowed by explicit calls for at least 50 bps more in rate hikes and several additional moves to revive price stability, reinforcing the view that current policy is not yet restrictive enough. The combination of a strengthening economic expansion and a well-balanced labor market underpins a narrative that without higher rates, inflation will not return to the Fed’s 2% target, a stance that is broadly supportive of the Dollar and negative for risk-sensitive assets.
The FXS Fed Sentiment Index rises by 1.68 points to 136.59, confirming a clear move deeper into hawkish territory and aligning with the elevated FXS Speechtracker reading. With the index far above the neutral 100 mark, markets are likely to price in a higher-for-longer rate path, which should underpin the Dollar while weighing on the Euro, Yen and other lower-yielding currencies.
Technical Analysis: US Dollar Index keeps a bullish vibe amid overbought conditions
In the daily chart, the near-term bias of Dollar Index Spot stays bullish as price holds well above the 100-day simple moving average (SMA) and the Bollinger middle band, reinforcing a constructive underlying trend. However, the Relative Strength Index (14) at 76.34 signals overbought conditions, suggesting that upside momentum is stretched and the index could be vulnerable to a corrective pause rather than a fresh impulsive leg higher.
On the topside, immediate resistance is located at the Bollinger upper band near 102.60, where buyers may start to moderate their exposure if overbought pressures intensify. On the downside, initial support emerges at the Bollinger middle band around 100.50, followed by the 100-day SMA at 100.15 as a deeper trend floor; a more pronounced setback would likely target the lower Bollinger band near 98.40, where broader demand should reassert if the bullish structure is to remain intact.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
