Dollar Index nudges to a fresh high and slips back as Japan raises rates

The Bank of Japan raised its interest rate to 1.25% on Friday, causing the Yen to weaken despite the move. The Dollar Index reached its highest level since late July, trading just above 100.30. The Euro makes up 57.6% of the index, while the Yen accounts for 13.6%. The Federal Reserve raised its own interest rate to 3.75-4.00% on September 16, while the European Central Bank raised its deposit rate to 2.50% on September 10.

Japan's rate is the highest since 1995 and is exactly a third of the Federal Reserve's range. The Japanese board of governors included two dissents from members Asada and Sato, both appointed this year. Speculators had shifted to betting on a stronger Yen, and the BoJ governor stated that the bank would continue raising rates as the economy and prices allow.

Core Japanese inflation eased to 1.7% in August, the first slowdown in four months. The 10-year American government bond yields around 5.00%, while the Japanese bond yields about 2.95%. The market now expects the Dollar's advantage over the Euro and Yen to continue until June 2027, with the Fed likely to increase rates further. The Pound Sterling makes up 11.9% of the Dollar Index, and the Bank of England maintained its rate at 3.75%, which widened the gap due to the Fed's rate hike.

The Dollar is currently bullish, with resistance at 100.50 and support at 100.00. The next objective is 101.00, followed by 101.50. The Stochastic Relative Strength Index (Stoch RSI) shows a momentum gauge near 68 and is still rising, supporting the bullish case.