Dollar's Rally Extends to Sixth Day on Rate-Hike Odds Jump

The US dollar climbed for a sixth straight session on Wednesday, touching its highest level in more than a year. The dollar index broke above 101, a level that had capped gains multiple times since the market turned higher.

Bets on a Federal Reserve rate hike at the September meeting jumped to 72% from 45% a month ago, according to CME FedWatch data. Hawkish comments from Fed officials and a run of resilient economic data drove the repricing. The move extends a rally that took the dollar to 13-month highs last week, as covered in our analysis of the dollar's 13-month peak.

The break above 101, the 38.2% Fibonacci retracement of the 110.00 to 95.35 downtrend, opened the path toward 102.00. Above that, the 102.40 to 102.60 zone brings together the 50% retracement and the 200-week moving average. That zone also corresponds to the upper boundary of a bull channel. The weekly cloud top sits at 102.91.

The dollar's rise has been accompanied by a steepening of the US yield curve. The two-year yield climbed 10 basis points to 4.85%, its highest since March. That yield advantage has widened against currencies where rate cuts are expected. The euro slipped toward its November lows. Sterling weakened to the softer end of its recent range. The yen has eased past 155. The move has been tempered by the risk of Japanese intervention.

Gold has edged lower on the dollar's rise and higher real yields. The metal now sits near $1,950, under pressure from the higher opportunity cost of holding non-yielding assets. Emerging-market currencies have also weakened.

The dollar's momentum has pushed short-term studies into overbought territory. The daily relative strength index is above 70, a level that often signals a correction. The market has so far shrugged off that signal. Dips have been bought, traders said.

The broken resistance at 100.94, the 38.2% retracement, now acts as support. The former high at 100.48 also offers a floor. A break below 100.00 would pause the rally and open a deeper pullback toward 99.50, traders said.

The next major test is the 102.40 to 102.60 zone, where the 200-week moving average sits. That level has capped rallies since late 2022. A weekly close above that zone would argue for renewed upside momentum, traders said.