Above 10.300: US Dollar Index (DXY) holds near April 2025 highs amid Fed bets and Iran risks

• DXY consolidates as fundamentals appear to favour further gains.
• With Fed rate hike expectations strengthening, geopolitical risks offer additional support for the US Dollar.
• A third consecutive weekly gain looks likely for the index ahead of the US PPI release.

The US Dollar Index (DXY) remains above 103.00 in Friday's Asian session. Tracking the Greenback against a basket of currencies, the index is consolidating within its bullish trend after a strong three-day advance took it to its highest level since April 2025 on Thursday. Supportive fundamentals suggest caution is needed before calling a near-term top.

Traders have priced in a tighter monetary policy stance after several Federal Reserve (Fed) officials delivered hawkish comments following October's stronger-than-expected US consumer inflation data. A December rate hike of 25 basis points (bps) is fully priced in, according to the CME Group's FedWatch Tool. The probability assigned to a larger 50-bps increase stands at around 13%. Combined with an overnight rise in crude oil prices, these expectations are keeping the benchmark 10-year government bond yield comfortably above 5%, supporting DXY bulls.

Higher Rates: RBC Sees Stronger Case for Fed Tightening

Despite noting that “the September surge in U.S. government bond yields largely reversed in October and November.”, RBC economists 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,” These factors reinforce their expectation that further policy action is likely needed to restrain US price pressures.

Geopolitical developments also support the positive outlook for the safe-haven US Dollar (USD). On Thursday, US President Donald Trump renewed his warning to Iran, saying those responsible for any attack on American officials would no longer exist. He also said he would not hesitate to take further military action if circumstances warranted it. In a Truth Social post, Trump said the US does not need a deal with Iran and that those days have long since passed. Attacks on Saudi Arabia's energy infrastructure and commercial ships in the Strait of Hormuz add to that supportive backdrop.

Friday's economic calendar centres on the US Producer Price Index (PPI), while speeches by influential FOMC members will help shape expectations for the Fed's policy path. Fresh geopolitical headlines could also sustain volatility across global financial markets and give DXY further impetus. The index nonetheless looks set for a third consecutive weekly advance, with scope to extend the uptrend seen over the past week or so.

DXY: Daily Price Chart

200-Day SMA: DXY Retains Bullish Bias

Trading comfortably above its 200-day Simple Moving Average (SMA), DXY retains a bullish near-term bias, reinforced by its ability to hold above 103.00. A drop through that level would bring the 102.60-102.50 area into focus, a former horizontal resistance zone that now acts as support. For now, the constructive technical picture suggests the bullish phase could extend to higher levels before overbought signals exert a more decisive drag.

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