US Dollar Index Holds Below 100.00 as Fed’s Hawkish Tone Supports the Greenback

Market Overview

The US Dollar Index (DXY) remains steady just below the key psychological level of 100.00 on Monday, supported by a hawkish Federal Reserve (Fed) stance following last week’s policy decision.

The DXY, which measures the US Dollar’s performance against a basket of major currencies, trades near 99.85 in early European hours. The index has gained over 1% since the Fed’s October meeting, as investors adjusted to expectations of a slower pace of rate cuts heading into year-end.

Fed Policy Outlook

As expected, the Federal Reserve cut its benchmark interest rate by 25 basis points, bringing the target range down to 3.75%–4.00%. However, Fed Chair Jerome Powell’s accompanying remarks struck a decidedly hawkish tone, emphasizing the central bank’s commitment to taming inflation while maintaining economic stability.

Powell acknowledged the difficulty of balancing policy amid persistent inflation pressures and a cooling labor market, and he cautioned against assuming further cuts in 2024. His comments helped strengthen the US Dollar, as traders scaled back bets on near-term easing.

According to the CME FedWatch Tool, the probability of a December rate cut has fallen to 67%, down from 91% before the meeting.

Data Watch: Manufacturing Sector in Focus

Investor attention now turns to upcoming US manufacturing data, which could provide fresh direction for the currency.

• The S&P Global Manufacturing PMI is expected to show a modest improvement to 52.2 in October, up from 52.0, suggesting that factory activity remains in expansion territory.
• Meanwhile, the ISM Manufacturing PMI is projected to remain in contraction, edging up slightly to 49.2 from 49.1.
• The prices paid subindex is forecast to climb to 62.6 from 61.9, indicating that input cost pressures may be resurfacing—a potential concern for inflation watchers.

A stronger set of manufacturing data could reinforce the Fed’s cautious stance and offer additional support to the Dollar.

Trade Developments Lend Support

Optimism surrounding the recent trade framework between US President Donald Trump and China’s Xi Jinping has also underpinned market sentiment.

The agreement, reached during bilateral meetings, focuses on improving trade transparency and reducing tariff uncertainty. The progress has eased short-term risks to global growth and bolstered demand for the Greenback as investors favor safe-haven assets amid gradual economic stabilization.

Outlook for the Dollar

With the Fed’s hawkish tilt, firm Treasury yields, and improving risk sentiment, the US Dollar Index is likely to remain well supported in the near term. However, the 100.00 level continues to act as a strong psychological resistance, and a decisive break above it could pave the way toward 100.50–101.00.

Conversely, weaker manufacturing data or renewed expectations of monetary easing could trigger a pullback toward 99.20 support. Traders will be closely monitoring Fed officials’ speeches this week for any clues about the central bank’s next move.

Frequently Asked Questions (FAQ)

Q1: Why is the US Dollar holding near 100.00?
The Dollar remains firm due to the Fed’s hawkish tone, as Chair Jerome Powell signaled caution on future rate cuts and reaffirmed the central bank’s inflation-fighting stance.

Q2: What did the Federal Reserve decide last week?
The Fed cut interest rates by 25 basis points to 3.75%–4.00%, marking its second reduction this year, but hinted that additional easing may not be imminent.

Q3: What are traders watching this week?
Markets are focused on US manufacturing PMIs and Fed commentary, which could influence rate expectations and the near-term direction of the US Dollar Index.

Q4: How does the trade deal affect the Dollar?
Improving US–China trade relations have boosted market confidence, supporting the Dollar as investors price in reduced geopolitical risk.

Q5: What are the key levels for DXY?
Immediate resistance lies at 100.00, with support near 99.20. A break above 100.00 could open the door to a test of 101.00 in the coming sessions.

Disclaimer

This article is for informational purposes only and does not constitute financial or investment advice. Market data, forecasts, and policy expectations are subject to change. Readers should consult a licensed financial advisor before making trading or investment decisions.