DOLLAR INDEX The Dollar Index (DXY) is a measure of the value of the US dollar relative to a basket of major foreign currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. It provides an overall indication of the dollar’s strength or weakness in the global foreign exchange market.
How the Dollar Index Works
The index is weighted based on trade volumes between the US and these countries, with the euro having the largest weight (~57.6%).
A rising Dollar Index means the US dollar is strengthening against the basket currencies; a falling index indicates dollar weakness.
Impact of Interest Rates and Bond Yields on the Dollar Index
Interest Rates:
Higher US interest rates generally attract foreign capital because they offer better returns on dollar-denominated assets, increasing demand for the US dollar and pushing the Dollar Index higher. Conversely, lower rates can weaken the dollar.
Bond Yields:
US Treasury yields are closely linked to interest rates. Rising bond yields attract yield-seeking investors from around the world, boosting demand for the dollar. Higher yields improve the dollar’s appeal relative to other currencies, often driving the Dollar Index up.
Rate Differentials:
The key driver is the differential between US interest rates/bond yields and those of other major economies. If US rates or yields rise more than those abroad, the dollar tends to strengthen.
The next Federal Open Market Committee (FOMC) meeting is scheduled for October 28-29, 2025. The key federal funds rate decision will be announced on October 29, typically at 2:00 PM Eastern Time, followed by a press conference led by Fed Chair Jerome Powell.
Regarding the Dollar Index (DXY), FOMC rate decisions have significant effects:
If the Fed cuts rates, as widely expected at this meeting due to a weakening labor market and inflation concerns, the US dollar tends to weaken against the basket of major currencies, putting downward pressure on the Dollar Index.
A dovish tone from the Fed, signaling further rate cuts ahead, typically extends dollar weakness.
Conversely, if the Fed surprises with a pause or hawkish stance, the dollar could strengthen, supporting an increase in the Dollar Index.
Market consensus currently leans toward a 25 basis point cut, implying a likely bearish impact on the Dollar Index near the announcement.
Summary
The Dollar Index gauges the overall value of the US dollar versus a currency basket.
Rising US interest rates and bond yields increase demand for US dollar assets, pushing the Dollar Index higher.
International rate differentials are key to understanding dollar strength or weakness in global forex markets.
This interrelationship influences trade, capital flows, and monetary policy impacts across economies..
trade direction based on structure.
the last analysis on dollar /gold inverse reaction was a complete reaction on Friday 17th at 97.999 and we have seen gold sell off on the dollar buy floor .
the next anticipation will be on 96.361 floor which will come along FOMC rate outcome ,if the rate decision and outlook becomes positive ,technical correction might continue for the yellow metal before rally.
the us-china tension is cooling off ,technically slowing central banks demand for the yellow metal.
GOODLUCK
#XAUUSD #GOLD #DOLLAR #DXY
