United States Dollar Index remains subdued as lower oil prices ease inflation pressure

• Declining oil prices hit the US Dollar Index as Trump deemed further Iranian strikes unlikely amid ongoing nuclear negotiations.
• October Nonfarm Payrolls rose by 165,000, significantly exceeding expectations and strengthening the Greenback.
• CME FedWatch indicates over a 78% probability of a 25-basis-point Fed rate increase.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground after two days of gains and trading around 102.20 during Asian hours on Monday.

The Greenback is facing near-term headwinds as a drop in crude oil prices helps ease inflationary pressures. Energy markets pulled back after US President Donald Trump signaled that further military action against Iran is "highly unlikely," contingent on continued progress regarding Iran's nuclear program and the Strait of Hormuz remaining open. Trump also acknowledged that the unpopular conflict in the Middle East, which had previously driven energy costs higher, played a key role in the Republicans' recent midterm election losses.

Despite these immediate pressures, the US Dollar (USD) stands to regain its footing on the back of dynamic labor market data and heightened expectations for monetary tightening. According to the CME FedWatch tool, the probability of a 25-basis-point interest rate hike at the December Federal Open Market Committee (FOMC) meeting has surged past 78%.

Fed-hawk-leaning sentiment is strongly underpinned by robust US employment metrics. October Nonfarm Payrolls (NFP) surged by 165,000—substantially outperforming the 65,000 consensus estimate and building on September's revised 60,000 figure—while the Unemployment Rate dipped to 4.1%, beating the 4.2% forecast. Investors and market participants are now turning their focus to Tuesday's Consumer Price Index (CPI) report and Friday's Producer Price Index (PPI) release for definitive cues on the Federal Reserve's upcoming policy path.

Technical Analysis:

In the daily chart, Dollar Index Spot trades at 102.20. The near-term bias is bullish as price holds above both the nine- and 50-period Exponential Moving Averages (EMAs), suggesting a constructive trend backdrop. The 14-day Relative Strength Index (RSI) sits around 57, hinting at positive but not overstretched momentum, while the FXS Fed Sentiment Index at 143.10 indicates still-elevated policy-tightening expectations that support the dollar’s bid.

On the downside, immediate support is seen at the nine-period EMA near 101.95, with a deeper technical floor at the 50-period EMA around 101.36 should corrective pressure extend. As long as the Dollar Index Spot holds above these moving average supports, the path of least resistance remains to the upside, with any pullbacks likely to be treated as consolidation within the broader bullish trend.

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