US Dollar Forecast: Rises as Gold Slips and EUR/USD Hits Two-Month Low

U.S. Dollar Index Gains on Fed Minutes, CPI in Focus

The U.S. Dollar Index (DXY) climbed on Wednesday, as traders absorbed the latest Federal Reserve minutes and anticipated upcoming U.S. inflation data. The DXY rose to 102.935, marking its highest level since August 16, after crossing the 50-day moving average on October 3. The recent rally has positioned the index for a potential test of the 103.144 pivot and the 200-day moving average at 103.748.

At 21:14 GMT, the U.S. Dollar Index (DXY) is trading 102.891, up 0.417 or +0.41%.

Fed Minutes Highlight Policy Divide

The Fed’s September meeting minutes revealed a lack of consensus among policymakers regarding the pace of interest rate adjustments. While the central bank enacted a 50-basis point cut last month, the minutes indicated that several officials preferred a more moderate 25-basis point reduction. The internal divide, coupled with stronger-than-expected U.S. jobs data, has prompted traders to reassess the outlook for future rate cuts.

Dallas Fed President Lorie Logan supported last month’s rate cut but emphasized a preference for smaller future reductions due to persistent inflation risks. Meanwhile, comments from other Fed officials, including Boston Fed President Susan Collins and San Francisco Fed President Mary Daly, are being closely monitored for additional insights into the central bank’s evolving policy stance.

Market participants currently see an 83% probability of a 25-basis point cut at the Fed’s November meeting, with an additional 50 basis points anticipated by year-end. Despite the dovish undertone of the minutes, the strong labor market data has tempered expectations for aggressive monetary easing, leading to a supportive environment for the U.S. dollar.

Euro Weakens, Yen Faces Volatility

The euro extended its decline to a two-month low against the U.S. dollar, trading 0.36% lower at $1.094.

The greenback’s strength also pushed the dollar/yen pair up by 0.72% to 149.26, the highest level since mid-August. The yen’s movements have been particularly volatile following remarks by Japan’s Prime Minister Shigeru Ishiba, who has been critical of the Bank of Japan’s monetary policy stance. Ishiba’s decision to call a snap election for October 27 adds further uncertainty ahead of key monetary policy meetings.

Gold Drops as U.S. Dollar Index Rises

Gold fell for a sixth consecutive session on Wednesday as the U.S. Dollar Index (DXY) climbed to a near two-month high, pressuring bullion prices. The stronger dollar made gold more expensive for holders of other currencies. Market sentiment shifted towards a 25-basis-point rate cut in November, supported by recent strong U.S. jobs data.

According to the CME FedWatch tool, the probability of a 50-basis-point cut has been significantly reduced. Despite short-term weakness, analysts suggest gold’s outlook remains favorable amid expectations of lower rates and geopolitical risks.

Market Forecast: Bullish Dollar Outlook

With the DXY sustaining momentum above key technical levels and the market adjusting to a less dovish Fed outlook, the near-term trend for the U.S. dollar remains bullish. The index is positioned to challenge the 103.144 pivot, and a break above this level could pave the way for a move toward the 200-day moving average at 103.748.

Thursday’s Consumer Price Index release will be critical in shaping expectations for future rate cuts and could drive further gains for the dollar if inflation data surprises to the upside.