103.08: US Dollar Index (DXY) pares gains after reaching 19-month high

The US Dollar Index has slipped back towards 102.80. Earlier gains have unwound after it reached a 19-month high of 103.08.
Expectations of additional Fed tightening, alongside a rebound in US equities, are viewed as the principal drivers of the US Dollar’s advance.
With bulls eyeing 103.10 and 103.50, any US Dollar pullbacks are likely to be shallow.

The US Dollar Index (DXY) is back below 103.00. Its earlier daily advance has reversed after a fresh 19-month peak of 103.08. Tracking the Greenback against a basket of six currencies, the DXY retains its broader upward trend following a 1.20% gain over the previous two days.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Stronger-than-expected price pressures in October have reinforced expectations of a December interest rate increase by the Federal Reserve (Fed). A larger 50 basis points hike remains a possibility. Against that backdrop, speculative traders have increased their US Dollar long positions this week.

Concerns over persistently high inflation voiced by Fed officials have provided further support for the US Dollar. Several are scheduled to make public remarks later on Thursday and are likely to reaffirm their hawkish position.

Another important driver of the recent USD advance, according to Commerzbank analysts Dr. Henry Hao and Charlie Lay, is the rally in US equities and semiconductor shares amid “renewed artificial intelligence optimism”.

Technical Analysis: 103.10 Caps US Dollar as Overbought Conditions Ease

The 161.8% Fibonacci extension of the November 5-6 rally, near 103.10, halted the bulls on Wednesday. The DXY is now undergoing a modest downward correction on the four-hour chart. Momentum signals on the 4-hour charts nevertheless remain positive. The Relative Strength Index (14) has already fallen below the 70 threshold for overbought conditions, while the Moving Average Convergence Divergence (MACD) indicator remains in positive territory, supporting the constructive outlook.

So far, selling pressure has been contained above 102.80. A break below would put the late October and early November highs, between 102.40 and 102.50, in focus as the next downside target. Above the market, the horizontal barrier near 103.10 provides initial resistance. The next obstacle is the high recorded on 8 April 2025, around 103.50.

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

US Dollar: Key Questions

What role does the US Dollar play?

Over 88% of global foreign exchange turnover involves the US Dollar (USD). According to 2022 data, that represents average daily transactions of $6.6 trillion, making it the world’s most actively traded currency. The USD is the official currency of the United States of America. It also serves as the ‘de facto’ currency in a significant number of other countries, circulating alongside their local banknotes. After the Second World War, the USD replaced the British Pound as the global reserve currency. Gold backed the US Dollar for most of its history, until the Bretton Woods Agreement in 1971 brought the Gold Standard to an end.

How does Federal Reserve policy affect the US Dollar?

Monetary policy set by the Federal Reserve (Fed) is the single biggest influence on the US Dollar’s value. Adjusting interest rates is the Fed’s main means of fulfilling its two mandates: maintaining price stability, or controlling inflation, and promoting full employment. If inflation exceeds the Fed’s 2% target and prices are climbing too rapidly, it raises interest rates, supporting the USD. Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut rates, putting pressure on the Greenback.

How does quantitative easing work, and what does it mean for the US Dollar?

When conditions are extreme, the Federal Reserve can create more Dollars and introduce quantitative easing (QE). Through QE, the Fed sharply expands the supply of credit within a financial system that is no longer functioning smoothly. This unconventional policy is used when banks stop lending to one another for fear of counterparty defaults, causing credit to dry up. It is a last resort when interest rate cuts alone are unlikely to deliver the required outcome. During the Great Financial Crisis in 2008, QE was the Fed’s preferred tool for tackling the credit crunch. The Fed creates additional Dollars to purchase US government bonds, mainly from financial institutions. The usual effect of QE is a weaker US Dollar.

How does quantitative tightening work, and what does it mean for the US Dollar?

Under quantitative tightening (QT), the Federal Reserve reverses that process: it ceases purchasing bonds from financial institutions and does not use the principal repaid on maturing bond holdings to make new purchases. This generally supports the US Dollar.