The US dollar index (DXY) surged during U.S. trading on Thursday (September 18), building on Wednesday's slight rebound as rising U.S. Treasury yields reignited demand for the greenback. The index's upward momentum brought it close to its 50-day moving average at 98.088 and the key pivot point at 98.238, both of which are closely watched by technical traders.



The move reflects that although the Federal Reserve had just announced a rate cut the day before, economic data eased market concerns about a weak labor market and the overall U.S. fixed income market was being repriced.

Unemployment claims data reshapes expectations about labor market health

Traders reassessed their risk outlook after a larger-than-expected drop in weekly initial jobless claims, which fell to 231,000 in the week ended September 13, well below the consensus forecast of 240,000 and down 33,000 from the previous week's revised figure.

Last week's surge in the data had sparked concerns about labor market strains, but Thursday's data confirmed that the previous increase was an anomaly, driven primarily by temporary distortions in Texas. This reshaping of labor market expectations reinforces the view that the U.S. economy remains on solid footing and dampens market expectations for a significant easing cycle from the Federal Reserve.

U.S. Treasury yields climb even after Fed cuts rates

Influenced by the unemployment benefit data, U.S. Treasury yields across all maturities surged. The 10-year Treasury yield climbed to 4.126%, up more than 5 basis points on the day; the 2-year Treasury yield followed suit, rising to 3.578%; and the 30-year Treasury yield rose to 4.738%.

The rise in yields came just one day after the Federal Reserve cut its benchmark interest rate by 25 basis points to a range of 4.00%-4.25%, a move widely anticipated by the market. However, the market reaction to the Fed's rate cut suggests that investors do not expect the rate cut cycle to last too long. Fed Chairman Powell characterized the rate cut as a "risk management" measure, further reinforcing market expectations of a gradual policy rollout.

Traders keep close eye on inflation as Fed signals gradual approach

The Fed's tone—cautious rather than dovish—has dampened market expectations for further significant easing in the near term. Officials have hinted at two more rate cuts possible before the end of the year, with action beyond that expected to be extremely limited. This cautious forward guidance has kept real yields elevated, directly supporting the dollar's appeal.

Market commentary echoed this stance. Gina Bolvin of Bolvin Wealth Management Group noted: "This is not a policy shift, but a prudent move." She emphasized that the Fed is trying to strike a balance between inflation control and labor market support.

Market Outlook: If yields remain stable, the dollar rebound is expected to continue


(Source of US Dollar Index daily chart: Yihuitong)

The US dollar index is currently approaching a key resistance level. As long as US Treasury yields continue to climb and labor market data doesn't show further unexpected weakness, the outlook for the dollar remains positive. A sustained break above 98.238 could trigger a stronger rally, especially if the Federal Reserve maintains a cautious tone and inflation data remains sticky. While a short-term pullback is possible, traders will closely monitor yield levels and subsequent economic data to confirm the continuation of the trend.

At 00:42 Beijing time, the US dollar index was at 97.4170/4400, up 0.42%.