US Dollar Index roars towards 103 as hot CPI reignites Fed hike bets

The US Dollar Index (DXY) experienced a surge, rising over 0.69% on Wednesday to reach a level of 102.90, marking its highest point since April 2025. This increase followed the release of US inflation data, which exceeded expectations and reignited speculation about potential Federal Reserve (Fed) rate hikes in 2027. The September Consumer Price Index (CPI) saw a month-over-month (MoM) increase of 0.6%, matching forecasts, while the year-over-year (YoY) rate climbed to 3.7%, surpassing predictions.

Core CPI, which excludes energy and food prices, grew by 0.3% MoM, exceeding expectations and reaching 2.6% YoY. The rise in headline inflation was primarily attributed to higher gasoline and diesel prices, as well as increased costs for shelter, owner-equivalent rent, recreation, education, used-car, and truck prices. In response to the report, money markets bolstered expectations for a Fed rate increase during the October meeting.

Prior to the announcement, the odds of a rate hike were close to 22%; now they have surged to 42%, with investors pricing in 54 basis points of tightening for 2027, according to Prime Terminal data. The US inflation figures also contradicted the statements made by New York Fed President John Williams on Tuesday, who had indicated a possible rate hike in 2026 but none in 2027.

US Treasury yields climbed, with the 10-year T-note increasing by 3.5 basis points to 5.251% and the 2-year Treasury yield rising nearly 7 basis points to 4.865%. The economic agenda will include the Fed's Beige Book, Producer Price Index (PPI), Retail Sales, Initial Jobless Claims, and additional Fed speaking engagements. The daily chart for the Dollar Index Spot is currently trading at 102.87, exhibiting a bullish near-term bias as it sits above the 50/100/200-day simple moving average cluster near 100.25 and follows an ascending medium-term trend line that is being tested around the current level.

The long-term upward trend line supporting the price is located just below the current value, while the Relative Strength Index (14) stands at 71.85, indicating overbought conditions and suggesting that the advance may be stretched but still supported by strong momentum. Support for the index is provided by a medium-term rising trend line at 102.87 and a long-term ascending trend line around 101.84.

A further decline could target the key moving average floor near 100.25, where the 50-, 100-, and 200-day simple moving averages converge to reinforce the broader bullish structure.