US Dollar Index (DXY) reaches 19-month highs at 103.08 before paring gains

• After reaching a 19-month high of 103.08, the US Dollar Index has surrendered its earlier gains to trade around 102.80.
• Expectations of additional Fed tightening, alongside a rebound in US equities, are regarded as the principal drivers of the US Dollar’s advance.
• With bulls looking towards 103.10 and 103.50, any US Dollar pullbacks are likely to be contained.

A fresh 19-month high of 103.08 earlier in the session has given way to a retreat below 103.00, leaving the US Dollar Index (DXY) lower after its earlier daily advance. Despite the pullback, the broader uptrend remains intact following a 1.20% rise over the previous two days. The DXY tracks the Greenback’s value against a basket of six currencies.

Stronger-than-expected price pressures in October have reinforced expectations of a December interest rate increase by the Federal Reserve (Fed), prompting speculative traders to build up US Dollar long positions this week. A larger increase of 50 basis points remains a possibility.

Concerns about persistently high inflation voiced by Fed officials have also lent support to the US Dollar. Further public remarks are expected from some officials later on Thursday, when they are likely to reaffirm their hawkish position.

The recent gains in US equities and semiconductor shares are another important explanation for the USD’s rise, according to Commerzbank analysts Dr. Henry Hao and Charlie Lay. They highlight the rally against a backdrop of “renewed artificial intelligence optimism”.

Technical Analysis: US Dollar Pulls Back After Reaching Overbought Levels

Wednesday’s advance stalled around 103.10, at the 161.8% Fibonacci extension of the November 5-6 rally, leaving the DXY in a modest downward correction on the four-hour chart. Nevertheless, momentum indicators on the 4-hour charts retain a positive tone. The Relative Strength Index (14) has already slipped below the 70 threshold for overbought conditions, while the Moving Average Convergence Divergence (MACD) indicator remains in positive territory, supporting the constructive outlook.

For now, selling pressure has been held above 102.80. A break below would bring the next downside objective into view between 102.40 and 102.50, where the late October and early November highs lie. On the upside, the first resistance is the horizontal barrier around 103.10, ahead of the 8 April 2025 high near 103.50.

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