United States Dollar Index Stays Under Pressure as Falling Oil Prices Temper Inflation

• Lower oil prices weighed on the US Dollar Index after Trump said further strikes against Iran were unlikely as nuclear negotiations continued.
• An October Nonfarm Payrolls increase of 165,000 comfortably surpassed forecasts, lending support to the Greenback.
• A 25-basis-point Fed rate rise carries a probability of over 78%, according to CME FedWatch.

At around 102.20 in Monday’s Asian trading, the US Dollar Index (DXY) is retreating following two days of advances. The index tracks the US Dollar (USD) against a basket of six major currencies.

Falling crude oil prices are easing inflationary pressures, creating a near-term obstacle for the Greenback. The retreat in energy markets followed remarks by US President Donald Trump that further military action against Iran was "highly unlikely," provided progress on Iran’s nuclear programme continued and the Strait of Hormuz stayed open. Trump also conceded that the unpopular Middle East conflict, which had earlier pushed energy costs higher, was a major factor in the Republicans’ recent midterm election losses.

Strong labour market figures and rising expectations of tighter monetary policy could nevertheless help the US Dollar (USD) recover its footing despite the immediate headwinds. The CME FedWatch tool now puts the likelihood of a 25-basis-point interest rate increase at December’s Federal Open Market Committee (FOMC) meeting at more than 78%, following a sharp rise.

October Nonfarm Payrolls (NFP) increased by 165,000, well above the consensus forecast of 65,000 and following September’s revised reading of 60,000. Meanwhile, the Unemployment Rate edged down to 4.1%, better than the 4.2% forecast. These strong US employment figures provide firm backing for expectations of a hawkish Federal Reserve. For clearer signals on the central bank’s forthcoming policy course, investors and other market participants are now looking to Tuesday’s Consumer Price Index (CPI) report and Friday’s Producer Price Index (PPI) release.

Technical Analysis: Dollar Index Retains Bullish Bias

With Dollar Index Spot trading at 102.20 on the daily chart, its position above both the nine- and 50-period Exponential Moving Averages (EMAs) keeps the near-term outlook bullish and points to a supportive underlying trend. Momentum remains positive without appearing overstretched, as the 14-day Relative Strength Index (RSI) stands near 57. Meanwhile, a reading of 143.10 on the FXS Fed Sentiment Index signals that expectations of policy tightening remain elevated, underpinning demand for the dollar.

The nine-period EMA near 101.95 provides the first downside support. If the correction deepens, the 50-period EMA around 101.36 offers a further technical floor. An upward move remains the path of least resistance while Dollar Index Spot stays above these moving averages, with setbacks likely to be viewed as consolidation within the wider bullish trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)