United States Dollar Index gathers strength above 102.00 on safe-haven flows

The US Dollar Index (DXY) has gained strength, trading above 102.00 amid safe-haven flows. Traders are awaiting the US ISM Services Purchasing Managers Index (PMI) report for additional impetus. The rise in US Treasury yields, along with Middle East conflicts and fiscal concerns in France, are contributing to the safe-haven flows supporting the US Dollar.

Matthew Ryan, head of market strategy at Ebury, notes that the broad sell-off in debt globally is fueling safe-haven flows into the greenback. September's Nonfarm Payrolls (NFP) data showed an increase of 29K compared to the 133K increase in August, which was below market consensus of 90K. The Unemployment Rate rose to 4.2% in September, up from 4.1% in August.

Traders now see an 82.3% chance of the Federal Reserve holding rates steady in October, down from 35.8% a week earlier, according to the CME FedWatch tool. The US services sector is expected to show signs of cooling in the latest ISM release, with the services index likely falling to a below-consensus 54.0 in September. Analysts highlight that recently strengthening new orders and activity components are expected to lead the reversal, though employment is still expected to improve for a second consecutive report, remaining in contraction.

Fed's Logan delivered a hawkish message, with the FXS Speechtracker score at 9.2/10, indicating a stronger tightening bias. The combination of economic expansion, a well-balanced labor market, and higher yields suggests inflation will not return to the Fed's 2% target without higher rates, which is supportive of the Dollar and negative for risk-sensitive assets.

The Dollar Index Spot remains bullish, holding above the 100-day simple moving average and the Bollinger middle band, but overbought conditions signal that upside momentum may be stretched, potentially leading to a corrective pause rather than a fresh impulsive leg higher.