US Dollar Index hovers around 101.70 as sliding US bond yields counters Fed hike bets

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to gain any meaningful traction on Thursday, trading around the 101.70 region during the Asian session. The index, however, holds above a near three-week low, touched on Tuesday, amid a combination of diverging forces.

US bond yields extend the recent retracement slide from multi-year highs, which, along with the growing acceptance that the Federal Reserve (Fed) will keep interest rates unchanged next week, keep US Dollar (USD) bulls on the defensive. Nevertheless, traders are still pricing in around a 90% chance that the US central bank will raise borrowing costs in December amid inflation risks stemming from volatile oil prices. This, along with persistent geopolitical uncertainties, offers some support to the safe-haven buck and helps limit the downside for the DXY.

In the latest developments surrounding the Middle East crisis, Iranian Foreign Minister Abbas Araghchi said that Tehran is prepared to give diplomacy another chance if it sees strong evidence of a sincere desire by the US to reach a solution. Separately, The New York Times reported that the US and Israel have drawn up plans for a possible new round of strikes against Iran after the US midterm elections. This warrants some caution before placing fresh bearish bets on the DXY and positioning for an extension of the recent pullback from an 18-month top.

Traders also seem hesitant and might now opt to move to the sidelines ahead of next week's key central bank event risk – the outcome of a two-day FOMC meeting on October 28. Apart from this, market participants will look to the release of the US Personal Consumption Expenditures (PCE) Price Index and Advance US Q3 GDP print, due next Thursday, for more cues about the Fed's future policy path. The outlook, in turn, will play a key role in providing some meaningful impetus to the DXY and help in determining the next leg of a directional move.

DXY 4-hour chart

Technical Analysis

The near-term bias tilts mildly bullish as the DXY holds above the 200-period Simple Moving Average (SMA) on the 4-hour chart. However, the 23.6% Fibonacci retracement at 101.92 could the recovery leg and will need to be reclaimed to resume the uptrend. A sustained break above would open the door to further gains toward higher retracement levels beyond the current structure.

On the downside, initial support is seen at the 38.2% retracement near 101.28, with the 200-period SMA at 101.00 reinforcing a secondary floor. A clear drop below this moving average would weaken the nascent bullish bias and expose deeper corrective risk.