Fed rate-hike odds help United States Dollar Index hold steady

• Further gains in the US Dollar Index could follow the stronger CPI readings.
• A December rate hike carries a probability of nearly 91%, according to the CME FedWatch Tool.
• Reduced safe-haven demand may weigh on the Greenback as optimism builds over a diplomatic settlement of the US-Iran conflict.

Holding on to the previous day's gain of over 0.5%, the US Dollar Index (DXY) is trading steadily around 102.20 during Wednesday's Asian session. The index tracks the US Dollar (USD) against a basket of six major currencies.

A recovery in the Greenback remains possible after the latest US inflation readings reinforced market expectations of a December rate hike by the Federal Reserve. Markets now assign approximately a 91% probability to an increase next month, according to the CME FedWatch Tool.

October's US Consumer Price Index increased 0.4% month-on-month, exceeding the 0.3% forecast despite moderating from September's 0.6% rise. Excluding food and energy prices, Core CPI advanced 0.3%, unchanged from September's pace and above the 0.2% estimate. Annual figures for October were not included by the Bureau of Labor Statistics because of last year's government shutdown.

Fading demand for safe-haven assets could, however, put pressure on the US Dollar as prospects for a diplomatic resolution to the US-Iran conflict improve. Further military strikes on Iran might no longer be needed, US President Donald Trump indicated. At a G7 meeting, US Secretary of State Marco Rubio similarly said that major combat operations were no longer necessary. Meanwhile, Congressional Democrats are considering whether to use the approaching government funding deadline to press the Trump administration towards a peaceful settlement.

Technical Analysis: Is Further Consolidation Likely?

With Dollar Index Spot at 102.20 on the daily chart, the near-term outlook remains neutral. Prices are staying close to recent closing levels, while nearby moving averages and structural levels offer no clear reference points in this dataset. Having eased to 56.49, the 14-day Relative Strength Index (RSI) sits in the middle of its range, indicating neither overbought nor oversold conditions. This points to balanced momentum following the overbought phase seen earlier in the sequence.

Upside momentum is modestly constrained by the RSI reading of 56.49 in the mid-50s, which reflects limited directional conviction. At the same time, the elevated FXS Fed Sentiment Index reading of 145.61 presents a broader sentiment headwind rather than an immediate technical trigger. The available data provides no clearly defined support or resistance from moving averages, Fibonacci levels or horizontal structures. Consequently, consolidation is likely to persist in the Dollar Index until new catalysts prompt a breakout from the current 102 area.

Does Goolsbee’s ‘real inflation issue’ warning signal a more hawkish Fed?

A more hawkish message from the Fed’s Goolsbee highlighted growing concern over persistent price pressures: his FXS Speechtracker score of 8/10 was notably above the historical average of 6.8/10. Describing the latest CPI as “borderline disturbing,” saying services inflation is “not coming down,” and stating that “we have a real inflation issue on our hands” indicate a clear readiness to consider further policy tightening should disinflation stall. His remarks on overheating prices, alongside a “steady and stable” job market and the caution that “everything is always on the table”, reinforce the risk of the Federal Reserve favouring greater restraint if inflation expectations move higher.

Consistent with the elevated FXS Speechtracker score, a 1.69-point increase took the FXS Fed Sentiment Index to 145.61, confirming a stronger hawkish impulse. As the index stands well above the neutral threshold of 100, markets are likely to view the interview as modestly raising the probability of further policy action to return inflation to target. Such a backdrop generally favours the Dollar against lower-yielding currencies.

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