USD Outlook: Traders focus on regional politics, yields and Chinese economic data, retreating within key range
2025-10-21 00:23:01
The U.S. Dollar Index (DXY) edged lower during U.S. trading on Monday, October 20, testing a key technical range between 98.238 and 98.714. Price action remained confined within this correction range as traders weighed political developments in Japan and Europe, signs of stabilization in Sino-U.S. trade relations, and cautious sentiment in the bond market.
The dollar rose against the yen but retreated against the euro, reflecting diverging political and fiscal expectations across regions. In Japan, the prospect of hardline conservative Sanae Takaichi becoming the country's first female prime minister has fueled renewed expectations of fiscal expansion, weighing on the yen.
USD/JPY rose 0.1% to 150.75, having earlier touched 151.20. Bank of Japan (BOJ) Governor Hajime Takata's call for an interest rate hike provided brief support to the yen, but overall market sentiment remained negative against the backdrop of a 3% rise in the Nikkei.
Euro edges higher as French political tensions ease
The euro edged up to $1.1664 against the dollar after signs of easing political tensions in France, but investor sentiment remained fragile as budget talks have yet to reach a consensus.
Although French President Emmanuel Macron's government has suspended pension reforms, traders remain cautious as fourth-quarter budget discussions approach and fiscal constraints tighten. Francesco Pesole of ING noted that a further deterioration in U.S. credit sentiment could push the euro higher, with some strategists targeting $1.180.
Bond markets remain stable as government shutdown concerns persist
U.S. Treasury yields were generally flat, with the 10-year yield falling below 4% to 3.995%. The government shutdown, now in its fourth week, has delayed the release of key economic data, and the market remains sensitive to this.
Investors are awaiting Friday's delayed September Consumer Price Index (CPI) report, which will provide a key input to next week's Federal Open Market Committee (FOMC) meeting. While the shutdown hasn't yet triggered a significant repricing of interest rate expectations, economists warn it could be a short-term drag on gross domestic product (GDP).
Chinese economic data supports risk sentiment
Better-than-expected Chinese third-quarter economic data provided a slight boost to market risk sentiment. China's economy grew 1.1% quarter-over-quarter, with industrial output increasing 6.5%, pushing the Australian dollar (AUD/USD) up 0.3% to 0.6504. Market participants interpreted the data as a sign of the Chinese economy's resilience to US tariffs. Furthermore, statements from Chinese and US officials hinting at a easing of tariff threats further eased investor concerns.
US Dollar Index Outlook: Cautious bearish sentiment prevails
(Source of US Dollar Index daily chart: Yihuitong)
As the US dollar index struggles to hold above 98.714, trader behavior suggests strong resistance at this level. If it fails to re-cross this threshold, market attention will shift to the 50% retracement level at 98.238.
The lack of sustained upward momentum for the US dollar, coupled with the cross-pollination of political factors and lower yields, means that the US dollar may face bearish pressure in the short term - unless the upcoming CPI data or guidance from the Federal Open Market Committee (FOMC) changes the overall market narrative.
At 00:20 Beijing time, the US dollar index was at 98.4960/5160, down 0.04%.
The dollar rose against the yen but retreated against the euro, reflecting diverging political and fiscal expectations across regions. In Japan, the prospect of hardline conservative Sanae Takaichi becoming the country's first female prime minister has fueled renewed expectations of fiscal expansion, weighing on the yen.
USD/JPY rose 0.1% to 150.75, having earlier touched 151.20. Bank of Japan (BOJ) Governor Hajime Takata's call for an interest rate hike provided brief support to the yen, but overall market sentiment remained negative against the backdrop of a 3% rise in the Nikkei.
Euro edges higher as French political tensions ease
The euro edged up to $1.1664 against the dollar after signs of easing political tensions in France, but investor sentiment remained fragile as budget talks have yet to reach a consensus.
Although French President Emmanuel Macron's government has suspended pension reforms, traders remain cautious as fourth-quarter budget discussions approach and fiscal constraints tighten. Francesco Pesole of ING noted that a further deterioration in U.S. credit sentiment could push the euro higher, with some strategists targeting $1.180.
Bond markets remain stable as government shutdown concerns persist
U.S. Treasury yields were generally flat, with the 10-year yield falling below 4% to 3.995%. The government shutdown, now in its fourth week, has delayed the release of key economic data, and the market remains sensitive to this.
Investors are awaiting Friday's delayed September Consumer Price Index (CPI) report, which will provide a key input to next week's Federal Open Market Committee (FOMC) meeting. While the shutdown hasn't yet triggered a significant repricing of interest rate expectations, economists warn it could be a short-term drag on gross domestic product (GDP).
Chinese economic data supports risk sentiment
Better-than-expected Chinese third-quarter economic data provided a slight boost to market risk sentiment. China's economy grew 1.1% quarter-over-quarter, with industrial output increasing 6.5%, pushing the Australian dollar (AUD/USD) up 0.3% to 0.6504. Market participants interpreted the data as a sign of the Chinese economy's resilience to US tariffs. Furthermore, statements from Chinese and US officials hinting at a easing of tariff threats further eased investor concerns.
US Dollar Index Outlook: Cautious bearish sentiment prevails
(Source of US Dollar Index daily chart: Yihuitong)
As the US dollar index struggles to hold above 98.714, trader behavior suggests strong resistance at this level. If it fails to re-cross this threshold, market attention will shift to the 50% retracement level at 98.238.
The lack of sustained upward momentum for the US dollar, coupled with the cross-pollination of political factors and lower yields, means that the US dollar may face bearish pressure in the short term - unless the upcoming CPI data or guidance from the Federal Open Market Committee (FOMC) changes the overall market narrative.
At 00:20 Beijing time, the US dollar index was at 98.4960/5160, down 0.04%.
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