Fed bets and Iran risks underpin US Dollar Index (DXY) above 10.300, near April 2025 highs

• A supportive fundamental outlook appears to favour DXY bulls even as the index takes a pause.
• The Greenback draws support from rising expectations of Fed rate hikes and geopolitical risks.
• With US PPI data awaited, the index looks set for a third consecutive weekly gain.

Bullish sentiment continues to underpin the US Dollar Index (DXY), which measures the Greenback against a basket of currencies, as it consolidates on Friday after a sharp three-day advance. That rally took the index to its highest level since April 2025 on the previous day. During Asian trading, DXY remains above 103.00, with supportive fundamentals suggesting caution before calling a near-term top.

Traders have moved to price in a tighter monetary policy stance after hawkish remarks from several Federal Reserve (Fed) officials followed stronger-than-expected US consumer inflation figures for October. According to the CME Group's FedWatch Tool, a December rate hike of 25 basis points (bps) is fully priced in, while the probability assigned to a larger 50-bps increase stands at around 13%. Together with the overnight rise in crude oil prices, these expectations are keeping the benchmark 10-year government bond yield comfortably above 5%, lending support to DXY bulls.

Is the case for further Fed tightening strengthening?

Despite observing that “the September surge in U.S. government bond yields largely reversed in October and November.”, economists at RBC maintain that “in the United States, the case for higher interest rates is stronger,”. Their assessment rests on the view that “rising core-inflation pressures, strong Q3 GDP growth, and a historically tight labour market continue to point to a need for additional Fed tightening to contain inflationary pressure,” supporting their belief that further policy action is likely needed to restrain US price pressures.

Geopolitical developments are also supporting the outlook for the safe-haven US Dollar (USD). On Thursday, US President Donald Trump renewed his warning to Iran, saying that anyone responsible for an attack on American officials would no longer exist. He also said he would not hesitate to take further military action should the situation call for it. In a Truth Social post, Trump added that the US does not need a deal with Iran and that those days had long since passed. Alongside attacks on Saudi Arabia's energy infrastructure and commercial vessels in the Strait of Hormuz, these developments reinforce the positive outlook for the currency.

Friday's economic calendar is led by the US Producer Price Index (PPI), while remarks from influential FOMC members will help shape expectations for the Fed's policy trajectory. Fresh geopolitical headlines could also keep global financial markets volatile and give DXY some impetus. Even so, the index is heading towards its third consecutive weekly gain and appears ready to extend the upward trend seen over the past week or so.

What does the DXY daily chart indicate?

Technical Outlook

A bullish near-term bias remains in place as DXY trades comfortably above its 200-day Simple Moving Average (SMA) and sustains levels above 103.00. Should the index slip below that mark, the 102.60-102.50 horizontal zone, where resistance was previously breached and has now become support, would come into focus. For now, the favourable technical setup suggests scope for further gains in the current bullish phase before overbought signals exert a more pronounced drag.

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