US Dollar Index Nears Annual High Amid Strong Bond Yields

The US Dollar (USD) is trading higher against major currencies, supported by strong bond yields amid persistent inflation concerns. The US Dollar Index (DXY), which measures the Greenback’s value against six key currencies, is up 0.1% near 102.20, close to its annual high of 102.54 reached earlier this week. The 10-Year US Treasury Yields are also up 0.24%, nearing a fresh two-decade high of 5.35%.

The USD has shown strength across the board, with the British Pound being the weakest performer. Despite softer-than-expected Nonfarm Payrolls (NFP) data for September, which has tempered expectations of aggressive Federal Reserve (Fed) rate hikes, bond yields remain elevated. Kenneth Broux of Societe Generale notes that while the softer payrolls report has reduced near-term tightening expectations, inflation remains the primary focus for the Fed.

Investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes from the September meeting, scheduled for Wednesday, for further insights into the Fed’s monetary policy outlook. Additionally, the ISM Services Purchasing Managers’ Index (PMI) for September came in weaker than expected at 54.9, down from the previous reading of 55.4.

Technically, the DXY is bullish, trading above the 20-day exponential moving average (EMA) at 100.96. The Relative Strength Index (14) at 76.10 indicates strong but stretched upside momentum. Immediate support is seen at 101.80, with the annual high at 102.54 acting as a major resistance level.