just now
What Drives Fed Policy, Yields, and DXY?
The war in the Persian Gulf will likely to be the key mover on inflation and across global markets in particular with commodities and energy reliance.
Source: AP
Also, the upcoming US-China summit will also provide highlight in terms of trade impact between two countries.
Last Friday the DXY climbed fueled by the Federal Reserve's rate hike and firm stance against inflation.
Mix closed on US equities last week ended as US Treasuries recovered. Driven by energy-led inflation fears, core consumer prices have risen, leading the Fed to raise interest rates this week. With most FOMC (Federal Open Market Committee) members favoring a further hike, credit-sensitive sectors specifically banks and asset managers declined.
The US Dollar Index (DXY) is holding near its highest point since July (around 100.3) while high interest rates are driving it up as the Federal Reserve is indicating that it may keep raising interest rates, which keeps demand for the dollar strong.
KEY DRIVERS TO PRICE MOVEMENTS OF DXY
Corporate earnings with Costco Wholesale as an indicator of consumer spending and a factor of demand driven inflation. Also, this indicates through the gap between its international sales with and without currency adjustments, while its U.S. sales signal consumer health and Federal Reserve rate expectations.
Source: Finlogix
Economic Calendar
Source: Finlogix
Sep 24 US-China summit
Sep 25 US Durable Goods Orders this data indicates strong economic and business spending, supporting expectations for the Federal Reserve rate hikes and a boost to the US Dollar (DXY).
OTHER FACTORS CREATING UNCERTAINTY PERTINENT TO DXY TREND
- Declining oil prices are helping to lower inflation (pushing against the need for high rates).
- Across central banks remain aggressive about trying to combat inflation.
- Japan may step in to strengthen the Japanese yen, which could push the US dollar back down.
Simultaneously, global financial markets reflect heightened risk sentiment across asset classes:
US equity markets surged on Monday led by tech gains, driven by lower Treasury yields and enthusiasm surrounding Meta's new AI agent. Major European indices also tracked this positive momentum, supported by falling bond yields, cheaper natural gas, and optimism over US-China tech talks.
However, European gains were partially tempered by localized corporate and political headwinds, including Volkswagen's decline after being removed from the EURO STOXX 50. Meanwhile, Eurozone economic data showed a mixed picture, where a sharp slump in construction output was offset by external trade strength that widened the current account surplus to €36.5 billion.
Source: Euronews
Evaluating DXY and Capital
Central Bank Interest Rates As Federal Reserve wants to keep interest rates high to fight inflation, while central banks in Europe and Japan are stuck keeping rates lower due to weaker economies.
Treasury Yields and Energy Prices U.S. government bond yields declining alongside oil and energy prices which changes how investors calculate risk and long-term returns.
Stock Market and Global Sentiment A strong rally in tech stocks like the Nasdaq performance and overall market optimism are weakening the U.S. dollar as investors move money into riskier assets.
Outside Risks and Government Intervention Japan might step in to buy its currency (Yen) to support its value, while ongoing U.S.-China tech and trade talks could suddenly shift market conditions.
BULLISH SCENARIO
- US rates stay high: The Fed plans to keep interest rates elevated, offering investors better returns and driving up demand for the US dollar.
- Europe's economy is weak: Dropping construction output and fear of high inflation with low growth make the euro unappealing.
- European politics are unstable: Election challenges in Germany raise risk in European markets, leading investors to treat the US Dollar as a safer option or alternative denomination of assets.
The US Dollar's resilience near 100.3 demonstrates that as long as the Federal Reserve maintains a hawkish bias toward further rate increases, monetary policy divergence remains the ultimate clearing price for global FX flows.
BEARISH SCENARIO
- Lower oil prices likely to cut inflation: Falling energy costs lower overall inflation, making market participants expect fewer Fed rate hikes, which reduces demand for the US dollar.
- Stock market surge squeeze safe havens: Dropping US Treasury yields lowered borrowing costs and sparked a big rally in tech and growth stocks. As capital flows into risky assets, safe-haven demand for the dollar shrinks.
- Yen intervention and trade talks limit gains: Threats from Japan to support the yen cap the dollar's upside, while positive US-China tech discussions boost investor confidence and reduce the need to hold defensive dollars.
While hawkish Fed rhetoric provides a floor for the Dollar at 100.3, falling Treasury yields and easing energy costs are stoking a powerful global equity rally that could limit further upside momentum in the short term.
TECHNICALS FOR DXY
Source: TradingView
- Relative Strength Index at 61.70 as it crossed the 50, meaning it means upward price movements are outperforming downward ones, showing that bullish momentum has overtaken bearish momentum, confirms remain intact not showing yet into extreme overbought territory
- Bollinger Bands as prices riding on the upper bands previously followed by green candles signaling bullish expansion rather than instant reversal.
- Resistance at 100.8, once breached next target would be 101.4 as shown from the Daily Chart and as previous July highest price levels surpassing 2026 first quarter highs.
- Support at 99.4 the support level from pre FOMC in August
- Support at 99.36 critical price support for the currency indicating soft demand in denomination.
Disclaimer: This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
