Lower oil prices ease inflation pressure, keeping United States Dollar Index subdued

• The US Dollar Index came under pressure from lower oil prices after Trump judged further strikes against Iran unlikely as nuclear talks continued.
• The Greenback gained support from October Nonfarm Payrolls, which increased by 165,000 and comfortably surpassed expectations.
• A 25-basis-point Fed rate hike carries a probability of more than 78%, according to CME FedWatch.

After advancing for two days, the US Dollar Index (DXY) has turned lower to trade near 102.20 in Monday's Asian session. The index tracks the US Dollar (USD) against a basket of six major currencies.

Lower crude oil prices are weighing on the Greenback in the near term by helping to moderate inflationary pressures. The retreat in energy markets followed US President Donald Trump's indication that additional military action against Iran is "highly unlikely," provided progress on Iran's nuclear programme continues and the Strait of Hormuz stays open. Trump also recognised that the unpopular Middle East conflict, which had earlier pushed energy costs up, was a major factor behind the Republicans' recent midterm election defeats.

Strong labour market figures and growing expectations of monetary tightening could nevertheless help the US Dollar (USD) recover its footing despite the current headwinds. The CME FedWatch tool puts the likelihood of a 25-basis-point rate increase at the December Federal Open Market Committee (FOMC) meeting at over 78%, following a sharp rise.

Solid US employment readings have reinforced expectations of a hawkish Fed stance. Against a consensus forecast of 65,000, October Nonfarm Payrolls (NFP) climbed by 165,000, following September's revised reading of 60,000. The Unemployment Rate, meanwhile, eased to 4.1%, better than the 4.2% forecast. Attention among investors and other market participants now shifts to Tuesday's Consumer Price Index (CPI) report and Friday's Producer Price Index (PPI) release for clear signals on the Federal Reserve's next policy steps.

Technical Analysis: Can the Bullish Bias Hold?

Trading at 102.20 on the daily chart, Dollar Index Spot retains a bullish near-term bias while remaining above the nine- and 50-period Exponential Moving Averages (EMAs). This positioning points to a favourable trend backdrop. Momentum also remains positive without appearing overstretched, with the 14-day Relative Strength Index (RSI) near 57. Meanwhile, the FXS Fed Sentiment Index reading of 143.10 signals that expectations of policy tightening remain elevated, underpinning demand for the dollar.

The nine-period EMA near 101.95 provides the first downside support. If the correction deepens, the 50-period EMA around 101.36 offers a lower technical floor. Holding above these moving averages would keep the path of least resistance tilted upwards for Dollar Index Spot, with declines likely to be viewed as consolidation within the wider bullish trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)