US Dollar Index Price Forecast: A pause ahead of the next bullish move

Ahead of October’s US CPI release, the US Dollar weakens.
Fresh military strikes on Iran are highly unlikely, US President Trump indicates.
Falling oil prices continue to weigh on the US Dollar.

The US Dollar (USD) faces broad pressure against its peers. Hopes of a United States (US)-Iran deal have pushed oil prices lower, weighing on the currency.

Near 101.67, the US Dollar Index (DXY) retains the previous day’s losses during Tuesday’s European session. The index tracks the Greenback against six major currencies. WTI Oil has meanwhile touched a new 10-week low near $84.20.

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

A softer message from Washington over the weekend has lifted investor optimism, MUFG analysts wrote in a note. President Donald Trump told CNN that ordering further military strikes on Iran would be “highly unlikely” if negotiations continued to make progress.

The quality of any agreement remains decisive, however, MUFG warned. US President Trump also said “it depends on whether or not they sign a very strong agreement,” a qualification the bank regards as essential to sustaining the recent decline in geopolitical risk premia.

For energy-exporting economies such as the US, cheaper oil reduces the appeal of their currencies.

Attention on the domestic calendar centres on October’s US Consumer Price Index (CPI), due at 13:30 GMT. Investors are closely awaiting the release.

0.2% Core CPI Forecast: Fed Watches Energy Spillovers as Surprises Ease

Energy-price pass-through will be a key focus for both the Fed and market participants in this week’s US inflation report. MUFG/BTMU analysts say they will examine it “closely for evidence of spillover effects from higher energy prices.” The analysts observe that “recent core CPI readings have surprised to the upside over the last couple of months,” describing the effect as “putting pressure on the Fed to tighten policy.” The near-term risk could nevertheless be easing. MUFG/BTMU note that “consensus expectations are looking for a softer core CPI print of 0.2%M/M in October,” leaving some room for inflation momentum to slow even as policymakers stay alert to the effects of higher energy costs.

101.65: US Dollar Index Technical Outlook

At 101.65 on the daily chart, Dollar Index Spot remains neutral. It is trading near the 20-period exponential moving average (EMA), which stands at 101.79.

With the Relative Strength Index (RSI) around 49, momentum appears neutral, offering little counterweight to the prevailing structural pressure.

A Bullish Flag chart pattern is taking shape. Historically, this pattern suggests that the neutral phase represents a pause before another upward move.

The first upside hurdle is the 20-EMA around 101.79. Beyond that lies the reclaimed trend-line zone near 102.20, where sellers may seek to preserve the broader corrective structure. Breaking above that structure would raise the probability of a return to the yearly high near 103.00.

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

US Dollar: Key Questions

US Dollar: Currency and Global Role

Over 88% of global foreign exchange turnover involves the US Dollar (USD). According to 2022 data, that represents an average of $6.6 trillion in daily transactions, making it the world’s most heavily traded currency. As well as being the official currency of the United States of America, it serves as the ‘de facto’ currency in a significant number of other countries, circulating alongside local banknotes. After the Second World War, the USD displaced the British Pound as the world’s 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.

Federal Reserve Policy and the US Dollar

Monetary policy is the single biggest influence on the US Dollar’s value. The Federal Reserve (Fed) sets that policy to fulfil two mandates: price stability, through controlling inflation, and full employment. Interest-rate adjustments are its principal means of pursuing both objectives. Inflation above the Fed’s 2% target, with prices climbing too rapidly, prompts rate increases that support the USD. Conversely, inflation below 2% or an excessively high Unemployment Rate may lead the Fed to cut rates, putting pressure on the Greenback.

Quantitative Easing: Implications for the US Dollar

In exceptional circumstances, the Federal Reserve may print additional Dollars and introduce quantitative easing (QE). This process substantially expands the flow of credit through a stalled financial system. Banks’ reluctance to lend to one another, driven by fears of counterparty default, can cause credit to dry up. QE is an unconventional response to that situation and a last resort when interest-rate cuts alone are unlikely to deliver the required outcome. The Fed chose this tool to tackle the credit crunch during the Great Financial Crisis in 2008. Under QE, it prints additional Dollars to purchase US government bonds, mainly from financial institutions. The policy generally weakens the US Dollar.

Quantitative Tightening: Implications for the US Dollar

Usually supportive of the US Dollar, quantitative tightening (QT) reverses the QE process. The Federal Reserve ceases bond purchases from financial institutions and allows its existing holdings to mature without reinvesting the principal in further purchases.