US Dollar Index (DXY) trims gains after hitting 19-month highs at 103.08

The US Dollar Index has given back previous gains, retreating to the 102.80 area from 19-month highs at 103.08.
Hopes of further Fed tightening and a recovery in US equity markets are seen as the main reasons for the US Dollar upswing.
Dollar dips are likely to remain limited, with 103.10 and 103.50 on the bulls' target.

The US Dollar Index (DXY) has reversed previous daily gains, returning to levels below 103.00 after hitting fresh 19-month highs at 103.08 earlier in the day. The DXY, which measures the value of the Greenback against a basket of six currencies, maintains its broader bullish trend intact after rallying 1.20% in the previous two days.

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Speculative traders have ramped up US Dollar longs this week, following stronger-than-expected price pressures in October, which have cemented expectations that the Federal Reserve (Fed) will hike rates in December, with the possibility of a jumbo hike –50 basis points– on the table.

Fed speakers have contributed to buoy the US Dollar, highlighting their concern about stubbornly high inflation. Some of them are expected to speak to the public later on Thursday, likely to reiterate their hawkish stance.

Commerzbank analysts Dr. Henry Hao and Charlie Lay point to the recent rally in US equities and semiconductor stocks amid “renewed artificial intelligence optimism” as another key factor explaining the recent USD upswing.

Technical Analysis: US Dollar is correcting lower from overbought levels

In the four-hour chart, the DXY is showing a mild bearish correction as bulls were capped at the 161.8% Fibonacci extension of the November 5-6 rally, at the 103.10 area on Wednesday. Momentum indicators on 4-hour charts remain positive, with the Relative Strength Index (14) already below the 70 level that marks overbought territory, while the Moving Average Convergence Divergence (MACD) indicator stays in positive territory, reinforcing the constructive bias.

Downside attempts are being contained above 102.80 so far, with the next bearish target below here, at the late October and early November highs, between 102.40 and 102.50. On the topside, initial resistance aligns at the horizontal barrier near 103.10, followed by the April 8, 2025 high, in the 103.50 area.

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

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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