US Dollar Index Reaches 18-Month High

The US Dollar Index (DXY) traded around 102.2 at the start of the week, remaining close to last week's 18-month peak. Investors are cautious amid the Middle East conflict and anticipation of US inflation data. Analysts are divided: will the growth stop at the long-term trend line or continue the multi-year trend?

In September, the index rose nearly 2%, from 98.8 to above 102, surpassing the July highs around 101.6. Macro strategist Gert van Lagen expects a halt at the trend line, which the index broke last year, and calls the movement a bearish retest. Sweep from GlydeGG agrees: he expects a rebound, which would be bullish for cryptocurrencies and stocks. Another analyst believes that DXY remains in an 18-year bull market from the record low of 70.698 on March 17, 2008, and the rally has years to go. Trader Alejandro also expects the dollar to strengthen, which pressures risk assets. CPI data will be released on Wednesday, followed by producer prices and retail sales on Thursday, and the Fed's decision on October 28. Rates were raised to 3.75–4.00% on September 16, for the first time since July 2023. According to CME FedWatch, the probability of maintaining the rate in October is 82.8% compared to 51% a month earlier. The University of Michigan's Consumer Sentiment Index in the preliminary October reading fell to 46.3, a five-month low, from 48.1 in September.

Barclays allows for a halt in the dollar rally and a pullback, pointing to bond market volatility. Especially if the CPI turns out to be soft. Bitcoin has historically moved against the dollar, but in September this correlation did not hold: BTC rose by 6.14% while the index increased by nearly 2%. In October, the crypto market capitalization fell by 1.4% due to rising yields, oil, and fund sales. A rebound of the dollar from the trend line will ease pressure on bitcoin, while a breakout upwards will test its resilience.