Above 103.00: US Dollar Index (DXY) climbs to highest since April 2025 amid Fed bets and Iran risks

• Stronger Fed rate hike expectations extend the DXY rally triggered by hot US inflation data.
• A persistent geopolitical risk premium from the US-Iran standoff underpins the USD.
• Further gains remain the most likely direction, judging by the fundamental backdrop.

DXY reaches its highest level since April 2025. During Thursday’s Asian session, bulls seek to extend gains beyond 103.00 in the US Dollar Index (DXY), which measures the Greenback against a basket of currencies.

Expectations of further policy tightening strengthened as several Federal Reserve (Fed) officials turned more hawkish after October’s US consumer inflation exceeded forecasts. Traders have also begun factoring in the possibility of an outsized 50-basis-point (bps) Fed rate hike in December. On Wednesday, those expectations drove the benchmark 10-year US government bond yield back above 5%, providing what is seen as a key source of support for DXY.

Waller’s hawkish shift strengthens Fed tightening bets and Dollar support

A 9/10 FXS Speechtracker score put Fed official Waller’s remarks well above the 7.3/10 historical average, highlighting a notably more hawkish tone and a clear preference for further tightening. Waller left the door open to a half-point December rate hike if core CPI comes in at 0.3% or above, while backing at least a quarter-point increase even if the data improve. That stance signals a forceful policy response to persistent inflation and broad-based price pressures. His emphasis on policy being less restrictive than previously assumed, and on the need for higher real rates to preserve that restraint, adds to upside risks for US yields and the Dollar.

A 3.17-point rise took the FXS Fed Sentiment Index to 145.50, further into hawkish territory above the neutral 100 threshold and consistent with the high FXS Speechtracker score. Together, the stronger index reading and the more hawkish-than-usual speech suggest markets should assign greater odds to further Fed rate hikes. This could support the Dollar against the Euro and Yen.

The US-Iran confrontation over the Strait of Hormuz, alongside fresh US strikes on Iran’s Qeshm Island, continues to sustain the geopolitical risk premium. Iran has also attacked ship navigation systems on Didamar, an Omani island at the entrance to the Persian Gulf. Iranian Armed Forces Deputy Chief of Staff Brigadier General Kioumars Heidari added that only an order from the leader of the revolution would allow the strategic waterway to reopen.

Prospects for a diplomatic end to the US-Iran conflict have weakened following these developments. That provides another source of support for the safe-haven US Dollar (USD), indicating that DXY’s path of least resistance is still upwards. Attention now turns to Weekly Initial Jobless Claims. Alongside remarks from influential FOMC members and further geopolitical headlines, the release should give the index meaningful impetus.

4-hour DXY chart

Technical outlook

The previous day’s breakout above horizontal resistance at 102.40-102.50 leaves DXY with a bullish near-term bias. Its position well above the 200-period Exponential Moving Average (EMA) on the 4-hour chart adds to the positive technical picture. Should a material correction develop, initial support could emerge around 101.55 at the 200-period EMA. Buyers would be expected to defend the broader uptrend there in the event of a pullback.

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