DXY Analysis: Dollar Pulls Back as Key Economic Data, PCE Inflation Awaited

U.S. Dollar Slips as Treasury Yields Rise; Key Economic Data Ahead

The U.S. Dollar Index (DXY) softened slightly on Monday, retreating from last week’s peak at 104.570 as traders faced resistance from the July high of 104.799. Despite the dollar’s pullback, underlying support remains at the 200-day moving average of 103.811, which continues to bolster bullish sentiment.

Meanwhile, U.S. Treasury yields advanced, with the 10-year yield adding 1 basis point to 4.24%, pushing upward after last week’s three-month high. The 2-year Treasury yield also gained, reaching 4.105%, highlighting the ongoing appeal of U.S. assets amid higher rates.

At 14:18 GMT, the U.S. Dollar Index (DXY) is trading 104.343, up 0.328 or +0.32%.

Treasury Yields Climb as Dollar Faces Pressure

The 10-year U.S. Treasury yield peaked last week above 4.25%, adding pressure to global currencies as investors priced in a persistent tightening stance from the Federal Reserve. Yet, despite firm yields, the dollar index faltered slightly. As markets look to this week’s key economic releases—including consumer confidence and the September jobs report—investors remain cautious about dollar strength relative to further Fed action.

Jobs Report and Inflation Data Set the Stage

With the Federal Reserve in its pre-meeting blackout, markets are closely watching upcoming data for signals on economic resilience. Friday’s jobs report is projected to show a moderate addition of 125,000 jobs, a decrease from September’s 254,000. Temporary disruptions from strikes and adverse weather could influence the headline figure, but traders are more focused on any underlying signs of cooling in wage growth, as an indicator of inflation moderation.

PCE and GDP Data Could Influence Fed Expectations

This Thursday’s Personal Consumption Expenditures (PCE) inflation report is anticipated to show a 0.3% increase in core prices month-over-month, up from August’s 0.1% gain. Stronger numbers would likely reinforce expectations for extended Fed tightening, particularly if consumer spending remains robust. Wednesday’s initial estimate of Q3 GDP growth at around 3% will also be critical, as strong economic activity could validate continued Fed hawkishness. Traders are monitoring for any data that might justify a rate pause or further tightening.

Euro and Yen React to U.S. Economic Strength

The euro strengthened slightly against the dollar, trading at $1.0817, yet remains down over 3% for October as European Central Bank (ECB) rate cut expectations weigh on the currency. ING analysts noted that the market is pricing in a potential 35-basis-point ECB rate cut by December, with potential escalation to 50 basis points if U.S. tariffs or protectionist policies materialize. Meanwhile, the yen slid to three-month lows, impacted by Japan’s election outcome, which may weaken political support for rate hikes, contributing to a 6.4% decline in October, the largest among G10 currencies.

Market Outlook

U.S. Dollar
Despite recent softness, the dollar could regain ground if economic data supports a continued hawkish Fed stance. Persistent high Treasury yields and robust GDP growth would likely attract safe-haven flows and further U.S. dollar gains.

Treasury Yields
Yields are likely to rise if inflation and employment data remain strong, sustaining Fed tightening expectations. Conversely, weaker data could prompt easing, benefiting risk assets but softening yields.

Gold

Gold may see support if inflation moderates or recession fears resurface, drawing safe-haven demand. However, persistent high yields or stronger dollar momentum could put pressure on prices.

With this week’s key data in focus, the dollar index is poised for heightened volatility, shaped by Fed policy speculation and global economic conditions. A bullish DXY scenario hinges on sustained economic resilience, though signs of moderation may open a path for easing and risk-on asset gains.