104.00 in Focus: US Dollar Index Rally Likely to Extend

• A 50 bps Fed rate hike is under consideration by traders. The US Dollar is trading higher.
• Friday’s release of October US PPI data is in focus for investors.
• 104.00 remains an upside target as the bullish trend continues.

Concerns that the Federal Reserve (Fed) could step up its current monetary tightening cycle to curb elevated inflationary pressures are supporting the US Dollar (USD) on Thursday. The currency is outperforming its major peers apart from the Japanese Yen (JPY).

103.08 marks a fresh 18-month high for the US Dollar Index (DXY) during the session. The index measures the Greenback against six major currencies.

Although a larger Fed interest rate increase at the December meeting remains highly unlikely, the prospect has given the United States (US) currency substantial support.

50bp hike risk: Waller remarks fuel Fed debate

Remarks by Fed Governor Christopher Waller before the inflation release, rather than the figures themselves, have prompted the latest market reassessment, according to analysts at MUFG/BTMU. As they put it, “on this occasion the market rethink is to consider the prospect of a 50bp hike,” with that possibility “only now being considered because of Waller’s comments prior to the CPI report rather than the CPI report itself.” In their assessment, Waller’s suggestion that “a stronger CPI print may warrant a 50bp hike” has “sparked a debate over whether Waller had knowledge of the CPI print.”

Rates markets have been quick to reflect the reassessment, MUFG/BTMU say, noting that “the OIS market now partially pricing the risk of a 50bp hike on 9th December.” A faster policy adjustment also finds support in Waller’s argument. He “makes the point that the sticky inflation and energy risks warrant the reversal of the 75bps of cuts and hence why wait two meetings to do that,” the analysts observe.

MUFG/BTMU nevertheless retain their reservations: “we remain sceptical of the need to hike by 50bps at this stage and suspect the majority will see the better risk-reward in going by 25bps.” Before the FOMC meeting, they note, there is “still another payrolls report (but no further CPI prints, although it’s the day after) before the FOMC meeting,” while warning that “a strong print plus a rebound in crude oil after the recent sharp drop would be one scenario of a possible more aggressive hike.”

Friday brings the October US Producer Price Index (PPI) release, which will be the next focus for financial markets.

103.02: US Dollar Index Technical Outlook

At 103.02 on the weekly chart, Dollar Index Spot is building on its bullish breakout from the Cup and Holder formation. A solid support structure is suggested by its position comfortably above both the 10-week Exponential Moving Average (EMA) at 101.69 and the former channel ceiling around 102.07.

With RSI (14) at 66.36 and nearing overbought territory, positive momentum remains strong. The advance is still constructive, though further gains could become slower if buying pressure grows overstretched.

The former channel ceiling near 102.07 provides initial downside support. Below that sit the 10-week EMA at 101.69 and the earlier consolidation zone around 101.64. Should the pullback deepen, the channel’s lower boundary near 100.84 would likely come into focus. Buyers could try to regain control there and maintain the broader bullish bias. Further gains, meanwhile, could take the index towards the 7 April 2025 high of 103.54, with 104.00 next.

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