The U.S. dollar index (DXY) weakened slightly on Monday (October 28) but remained around 98.90 as traders awaited key macroeconomic catalysts, especially the Federal Reserve's two-day policy meeting starting on Tuesday.



The US dollar index continues to hold above the critical support zone of 98.797-98.714, however, any break below this area could accelerate the decline towards the 50-day moving average of 98.128. On the upside, a break above 99.139 would signal renewed buying interest and could lead to a retest of the monthly high of 99.563.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market overwhelmingly expects the Fed to cut interest rates by 25 basis points, with nearly 97% of traders holding this view. However, the central bank's forward guidance and any comments on balance sheet adjustments will be closely scrutinized. Ahead of the decision, U.S. Treasury yields edged higher, with the 10-year yield rising to 4.012% and the 2-year yield to 3.497%, reflecting a cautious market repositioning.

Central Bank Week: ECB and Bank of Japan in focus

While the Federal Reserve is the focus of U.S. markets, both the European Central Bank and the Bank of Japan will announce interest rate decisions on Thursday. The ECB is expected to keep rates unchanged, supported by strong euro zone data last week, which pushed the euro to $1.1628 against the dollar and a record high against the yen of 178.13 yen.

Meanwhile, the yen remained under pressure, declining for the seventh consecutive session as markets assessed the impact of Prime Minister Sanae Takaichi's leadership and rising energy prices. However, upside risks remain if the Bank of Japan unexpectedly takes a hawkish stance. Analysts believe the Bank of Japan may debate whether to resume rate hikes, though political constraints may prevent immediate action.

Market forecast: The US dollar index tends to be cautiously bullish


(Source of US Dollar Index daily chart: Yihuitong)

Despite the weaker intraday trend, the US dollar index was able to hold above the 98.797-98.714 support range and the 50-day moving average at 98.128, which indicates potential buying interest. The short-term directional bias depends on the Fed's decision on Wednesday, but any signs of a slowdown in the pace of quantitative tightening or a rise in the attractiveness of US dollar yields could provide new support.

While the US dollar index remains range-bound, a sustained breakout above 99.139 would confirm short-term bullish momentum. Conversely, a failure to hold above the 50-day moving average could cause sentiment to turn bearish.