United States Dollar Index holds gains above 100.00 as Fed signals further tightening
- US Dollar Index rallied following a 25-basis-point rate hike to a target range of 3.75%-4.00%.
- Fed Chair Warsh cited high inflation, with markets pricing a 49.8% probability of an October rate increase.
- Holding above key nine- and 50-day EMAs signals a bullish near-term bias, supporting a constructive recovery.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its winning streak for the sixth successive day and trading around 100.30 during Asian hours on Thursday. The US Initial Jobless Claims data will be released later in the day.
The Greenback remains on a firm footing following an interest rate hike by the US Federal Reserve (Fed), alongside signals that another increase could follow before the end of the year. The central bank raised the federal funds rate by 25 basis points to a target range of 3.75% to 4.00%. The move matched market expectations, representing the Fed's first interest rate increase in three years.
In his post-meeting remarks, Fed Chair Kevin Warsh explained that the rate hike was driven by inflation remaining "too high" and lingering "for too long," describing the action as a "sober" and "responsible decision." Warsh signaled that further rate increases remain on the table in an effort to curb persistent price pressures. Following the announcements, money markets priced in roughly a 49.8% probability of another Fed rate hike at the October meeting, according to the CME FedWatch tool.
Fed’s Warsh underscores inflation fight as economy strength allows focus on price stability
Warsh’s press conference tone was distinctly hawkish, with the 7.4/10 FXS Speechtracker score modestly above the 7/10 historical average, signaling a firmer commitment to tightening policy relative to the established baseline. By stressing that “because of underlying strength of the economy we can afford to focus on price stability” and that “today we took a step toward delivering price stability,” the remarks framed the latest move as a deliberate removal of accommodation driven by persistent inflation trends rather than data noise. Emphasis on full employment, non-restrictive financial conditions, and the primacy of price stability reinforces a narrative that the FED is prepared to keep the pressure on inflation, a backdrop typically supportive of the Dollar and negative for risk-sensitive FX.
The FXS Fed Sentiment Index jumped by +26.07 points to 151.79, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. A reading this far above the neutral 100 mark signals that markets should interpret the decision and tone as a clear hawkish shift, with expectations for tighter policy and a stronger Dollar relative to lower-yielding peers.
Technical Analysis:
In the daily chart, Dollar Index Spot trades at 100.30. The near-term bias is bullish as price holds above both the 50- and nine-day Exponential Moving Averages (EMAs), suggesting a constructive recovery after the recent dip. The 14-day Relative Strength Index (RSI) at 63.58 is approaching overbought territory, hinting that buyers retain control but could face some fatigue if the index extends its advance too quickly, while the elevated FXS Fed Sentiment Index at 151.79 reinforces a supportive policy backdrop for the dollar.
On the downside, initial support is seen at the 50-day EMA at 99.69, followed closely by the shorter nine-day EMA at 99.64, forming a tight demand area that would need to give way to signal a deeper corrective phase. As long as the Dollar Index Spot holds above these moving averages, the technical structure favors further upside, with the psychological 100.00 area now acting as an intermediate floor rather than a cap in the current bullish setup.
(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.
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Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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