The US Dollar Index is just one step away from the 100 mark

In the autumn of 2025, amidst the intertwining of global geopolitical and economic uncertainties, the US Dollar Index (DXY) is approaching the significant level of 100 with an unstoppable momentum. The rebound of the dollar index this time is mainly supported by the following logical factors.

Powell adopts a hawkish stance, soaring US interest rates support the rise of the dollar index

Although the Federal Reserve cut interest rates by 25 basis points in October, Chairman Powell's statements after the meeting exceeded market expectations. He clearly stated that "a further rate cut in December is not a foregone conclusion" and emphasized that "there are risks to the policy path," which directly extinguished the market's fantasies about the onset of a loosening cycle by the end of the year. As a result, the market's expectation of a rate cut in December plummeted from 95% before the meeting to 67%, driving the 10-year US Treasury yield from 3.8% at the beginning of October to 4.11%. The rapid rise in interest rates has become the core driving force supporting the strength of the dollar index.

Figure 1 Probability of a Federal Reserve rate cut in December falls below 70%

Figure 2 10-year Treasury yield and the dollar index

Bank of Japan shifts to a dovish stance, weak yen boosts the dollar index

The Bank of Japan maintained its interest rates at the same meeting, and although inflation data continues to exceed targets, Governor Kazuo Ueda sent a strong "wait-and-see" signal, refusing to provide guidance for a rate hike in December. This dovish stance led to a failure of market expectations for a quick rate hike by the Bank of Japan, resulting in a sell-off of the yen. Consequently, the USD/JPY exchange rate further climbed from 152.7 at the end of October to 154.09, with the yen's weakness providing significant support for the rise of the dollar index.

Figure 3 Expectations for a Bank of Japan rate hike in December decline rapidly

Economic concerns in the UK and Eurozone put pressure on non-dollar currencies

The strength of the dollar index is also derived from the weakness of its major component currencies. In the UK, the Office for Budget Responsibility plans to lower productivity forecasts, potentially creating a fiscal gap of £20 billion, while its inflation data fell short of expectations, exacerbating market concerns about the UK economy and the pound. The Eurozone also showed weakness, with EUR/USD dropping about 200 points from its October high. The fiscal risks in the UK resonate with the economic weakness in the Eurozone, amplifying the upward trend of the dollar index.

U.S. Government Shutdown Creates Data Vacuum, Strengthening Dollar's Safe-Haven Appeal

The ongoing shutdown of the U.S. federal government has led to the postponement of a series of key economic data releases, including non-farm employment, resulting in a "data black hole" in the market. This political deadlock unexpectedly enhances the safe-haven appeal of the dollar. In a period of confusion lacking clear fundamental data guidance, the market tends to prefer holding highly liquid and high-yield dollar assets, making it difficult to find strong logical support for shorting the dollar.

Figure 4 DXY vs. AUDEUR

Looking ahead, whether the dollar can truly break through the 100 level depends, on one hand, on whether economic data (especially non-farm) can stabilize after the government reopens, which is key to determining whether the Federal Reserve can cut interest rates in December. Currently, three Federal Reserve officials have publicly expressed opposition to rate cuts, citing reasons such as: the labor market is basically balanced, economic growth momentum is sustained, but inflation remains too high; the current rise in U.S. stocks indicates that the financial environment is still very loose; and cutting rates too quickly could lead to a resurgence in inflation expectations. In the face of significant divergence, the economic data situation brought about by the government restart will be very important. Specifically: 1) If the restart occurs next week: a full set of non-farm, CPI, and retail data for September to November can be obtained; if the data is poor, it will increase the probability of a rate cut in December. 2) If the restart occurs in mid-November: only September's official data will be available, but state-level and private indicators can fill the gaps, and a rate cut remains quite possible. 3) If the restart waits until after Thanksgiving: only September employment and CPI data will be available, with retail data missing, making the probability of pausing rate cuts high in a data vacuum.

Secondly, we should observe the further movements of other non-U.S. currencies, especially the Bank of Japan's attitude towards the exchange rate and whether it will continue to allow the yen to depreciate. Japanese Finance Minister Shunichi Suzuki has expressed his position through verbal intervention, using common phrases such as "unilateral, rapid fluctuations," and stated that he is "highly urgently" monitoring exchange rate trends. If the yen rapidly depreciates to the 155 level, it may trigger intervention from the Bank of Japan, applying some pressure on the U.S. dollar index.

Author of this article: Zhang Shuai Xin, Source: Good Morning Forex, Original Title: "The US Dollar Index is Just One Step Away from the 100 Mark"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk