US Dollar Index hovers around 101.70 as sliding US bond yields counters Fed hike bets

The US Dollar Index (DXY) struggled to make significant progress on Thursday, remaining close to the 101.70 level during Asian trading hours. Despite this, the DXY remained above a three-week low reached on Tuesday. A key driver of the index's stability is the ongoing decline in US bond yields, combined with the expectation that the Federal Reserve will maintain interest rates steady during their upcoming meeting.

Still, around 90% of traders believe the Fed will raise borrowing costs in December, a factor that supports the US Dollar (USD) and helps keep the DXY on the defensive. Iran's willingness to engage in diplomacy under certain conditions and the potential for new strikes against Iran by the US and Israel add to the cautious sentiment in the market.

Traders will be closely watching the outcome of the Federal Open Market Committee (FOMC) meeting on October 28 and the release of key economic data, such as the US Personal Consumption Expenditures (PCE) Price Index and Advance Q3 GDP print. The DXY's near-term outlook is mildly bullish, with the index currently trading above the 200-period Simple Moving Average (SMA) on the 4-hour chart.

However, the 23.6% Fibonacci retracement level at 101.92 may act as a barrier for a recovery leg. If the DXY breaks above this level, it could pave the way for further gains. Conversely, a break below the 38.2% retracement near 101.28 and the 200-period SMA at 101.00 could weaken the bullish bias and expose the DXY to more significant downside risks.