The US Dollar (USD) continued to drift higher, influenced by a divided Federal Reserve, according to OCBC FX analysts Frances Cheung and Christopher Wong. The US Dollar Index (DXY) last traded around 99.96.
Fed’s Divisions Keep Dollar Supported
Fed officials remain split on the policy path:
- Austan Goolsbee is undecided ahead of the December meeting. He is more concerned about inflation than the labor market and believes rates could fall “a fair amount” but only in line with inflation trends.
- Neel Kashkari emphasizes labor market risks outweigh inflation concerns, but did not signal support for another rate cut in December.
- Mary Daly agreed with the Fed’s recent rate cuts but stressed keeping an “open mind” on the possibility of another cut in December.
OCBC notes that the combination of a divisive Fed and the absence of key US economic data due to the government shutdown is creating conditions for a potential USD short squeeze in the near term.
Factors Driving USD Strength
Several dynamics are supporting the US Dollar at present:
- Dovish market pricing for 2026 – expectations for future rate cuts are moderating, which could trigger short-term USD gains.
- Funding squeeze – higher borrowing costs make shorting USD more expensive, adding to the currency’s upside.
- Technical momentum – daily charts show bullish momentum, with the RSI approaching near overbought conditions, suggesting further upside potential.
However, OCBC cautions that once funding conditions normalize, the short squeeze could unwind, potentially softening USD strength.
Technical Levels
- Resistance: 100.50–100.60 (200-day moving average, 76.4% Fibonacci retracement)
- Support: 99.80 (61.8% Fibonacci), 99.10 (50% Fibonacci retracement of May–Sep), 98.40 (38.2% Fibonacci)
Looking Ahead
Recent ISM manufacturing data showed further contraction, while investors await this week’s ADP Employment Change (Wednesday) and ISM Services reports. The October payrolls release, initially scheduled for Friday, may be delayed.
Markets are expected to continue monitoring Fed commentary and US corporate earnings closely to gauge the health of the economy.