Expectations of interest rate cuts and personnel suspense coincide: What is the driving force behind the strengthening of the US dollar?
2025-10-09 20:46:47
Before the U.S. market opened on Thursday (October 9), the U.S. Dollar Index (DXY) was trading near 99, remaining at the upper end of its range. With the Senate vote on reopening the government still nowhere in sight, and virtually no major economic data released that day, the market was left to navigate the dark, relying on interest rate expectations and bond market cues. In this information-imperfect environment, every fluctuation in the dollar felt more like a vote on expectations.
US Dollar Performance: Pre-market trading, the dollar's changes against major currencies were as follows: EUR +0.05%, JPY flat, GBP +0.21%, CHF -0.14%, CAD -0.02%, AUD -0.20%, and NZD +0.12%. Structurally, the market is not a one-sided bull market, but rather a consolidation driven by the rotation of different assets.
Policy Communication: New York Fed President John Williams reiterated his support for further interest rate cuts this year, while emphasizing that the US economy is not on the verge of a recession. While slowing job growth and declining hiring intentions among businesses warrant attention, inflation is declining, with core indicators "inching closer" to the 2% target. He acknowledged that tariffs have raised prices for some imported goods, but noted no evidence of a second wave of inflation. The overall message is that interest rates should return to neutral territory, and the central bank needs to focus on its dual mandate amidst political noise.
Central Bank Personnel Uncertainty: Treasury Secretary Bessent and his team have interviewed 11 potential Federal Reserve Chair candidates over the past few weeks, each interview lasting two hours. The interviews focused on their views on interest rates, quantitative easing, and mandate expansion. Uncertainty about the personnel situation can prolong the market's pricing of the long-term policy path, thereby amplifying volatility.
Bond Market Pricing: US Treasury yields fluctuated narrowly, with the 2-year yield at 3.588% (+0.5bp), the 5-year yield at 3.722% (unchanged), the 10-year yield at 4.124% (-0.6bp), and the 30-year yield at 4.710% (-1.4bp). The yield curve remained virtually flat, indicating stable terminal interest rate expectations, but remaining doubts about long-term growth and the nominal neutral interest rate.
Government shutdown and "data vacuum": The shutdown has entered its ninth day and the bill has failed to advance many times, which has led to the postponement of last week's non-farm payrolls and initial claims. If the deadlock continues, next week's CPI may also be unresolved.
The Federal Reserve minutes from September indicated that "most officials favored another rate cut this year," but some members cautioned against cutting rates too quickly, citing persistent inflationary pressures. The minutes also noted rising labor market risks and modest job growth, suggesting increased policy space, albeit at a cautious pace.
On the daily chart, the US Dollar Index has crossed above the upper Bollinger Band at 98.8724, the middle Bollinger Band at 97.7913, and the lower Bollinger Band at 96.7102. The price is trading strongly near the upper band, suggesting an acceleration within an upward channel in the short term. However, this also suggests a higher probability of a pullback and a retest of the upper band.
Resistance and Support: On the upside, immediate resistance is 99.0940 (the period high). Further below is 100.2599 (the previous swing high), a strong resistance level and a psychological barrier. Below, 98.8724 becomes dynamic support. If this level breaks, the market will target 97.7913 (the middle Bollinger band), followed by 96.7102 (the lower band). Lows of 96.3729 and 96.2109 form a static double support band.
Trend and Momentum: MACD shows DIFF 0.2019 > DEA 0.0465, and MACD-Histogram 0.3109 is positive and expanding, indicating that bullish momentum is accumulating and no top divergence signal has appeared. RSI(14) is 62.8397, falling in the strong zone but not overbought, giving bulls technical room to continue their upward attack.
Technical Summary: The current trend looks more like a test of the upper limit of a strong range. As long as 98.8724 remains intact, a move to 99.0940 remains a high-probability path. If it holds above this level, the price will test 100.2599. However, a decline below 97.7913 would signal the end of the upward trend, leading to a period of consolidation or even a temporary reversal.
Emotional tone: The statement of interest rate cut has brought restraint to the bullish market sentiment of the US dollar; the data window caused by the shutdown has amplified the weight of news-driven factors and made emotions more elastic.
Consensus and Divergence: The market is almost unanimous on the Federal Reserve's "further rate cuts this year," with disagreements regarding the pace and ultimate interest rate. This means that near key levels, confirmation signals (such as a stable closing price above the upper limit or a strong bullish trend with strong volume) are more likely to drive subsequent trend trading than prior guesses.
Fundamentals
US Dollar Performance: Pre-market trading, the dollar's changes against major currencies were as follows: EUR +0.05%, JPY flat, GBP +0.21%, CHF -0.14%, CAD -0.02%, AUD -0.20%, and NZD +0.12%. Structurally, the market is not a one-sided bull market, but rather a consolidation driven by the rotation of different assets.
Policy Communication: New York Fed President John Williams reiterated his support for further interest rate cuts this year, while emphasizing that the US economy is not on the verge of a recession. While slowing job growth and declining hiring intentions among businesses warrant attention, inflation is declining, with core indicators "inching closer" to the 2% target. He acknowledged that tariffs have raised prices for some imported goods, but noted no evidence of a second wave of inflation. The overall message is that interest rates should return to neutral territory, and the central bank needs to focus on its dual mandate amidst political noise.
Central Bank Personnel Uncertainty: Treasury Secretary Bessent and his team have interviewed 11 potential Federal Reserve Chair candidates over the past few weeks, each interview lasting two hours. The interviews focused on their views on interest rates, quantitative easing, and mandate expansion. Uncertainty about the personnel situation can prolong the market's pricing of the long-term policy path, thereby amplifying volatility.
Bond Market Pricing: US Treasury yields fluctuated narrowly, with the 2-year yield at 3.588% (+0.5bp), the 5-year yield at 3.722% (unchanged), the 10-year yield at 4.124% (-0.6bp), and the 30-year yield at 4.710% (-1.4bp). The yield curve remained virtually flat, indicating stable terminal interest rate expectations, but remaining doubts about long-term growth and the nominal neutral interest rate.
Government shutdown and "data vacuum": The shutdown has entered its ninth day and the bill has failed to advance many times, which has led to the postponement of last week's non-farm payrolls and initial claims. If the deadlock continues, next week's CPI may also be unresolved.
The Federal Reserve minutes from September indicated that "most officials favored another rate cut this year," but some members cautioned against cutting rates too quickly, citing persistent inflationary pressures. The minutes also noted rising labor market risks and modest job growth, suggesting increased policy space, albeit at a cautious pace.
Technical aspects:
On the daily chart, the US Dollar Index has crossed above the upper Bollinger Band at 98.8724, the middle Bollinger Band at 97.7913, and the lower Bollinger Band at 96.7102. The price is trading strongly near the upper band, suggesting an acceleration within an upward channel in the short term. However, this also suggests a higher probability of a pullback and a retest of the upper band.
Resistance and Support: On the upside, immediate resistance is 99.0940 (the period high). Further below is 100.2599 (the previous swing high), a strong resistance level and a psychological barrier. Below, 98.8724 becomes dynamic support. If this level breaks, the market will target 97.7913 (the middle Bollinger band), followed by 96.7102 (the lower band). Lows of 96.3729 and 96.2109 form a static double support band.
Trend and Momentum: MACD shows DIFF 0.2019 > DEA 0.0465, and MACD-Histogram 0.3109 is positive and expanding, indicating that bullish momentum is accumulating and no top divergence signal has appeared. RSI(14) is 62.8397, falling in the strong zone but not overbought, giving bulls technical room to continue their upward attack.
Technical Summary: The current trend looks more like a test of the upper limit of a strong range. As long as 98.8724 remains intact, a move to 99.0940 remains a high-probability path. If it holds above this level, the price will test 100.2599. However, a decline below 97.7913 would signal the end of the upward trend, leading to a period of consolidation or even a temporary reversal.
Market Sentiment Observation
Emotional tone: The statement of interest rate cut has brought restraint to the bullish market sentiment of the US dollar; the data window caused by the shutdown has amplified the weight of news-driven factors and made emotions more elastic.
Consensus and Divergence: The market is almost unanimous on the Federal Reserve's "further rate cuts this year," with disagreements regarding the pace and ultimate interest rate. This means that near key levels, confirmation signals (such as a stable closing price above the upper limit or a strong bullish trend with strong volume) are more likely to drive subsequent trend trading than prior guesses.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
