The US Dollar Index has strengthened to approximately 100.45 during the early European session on Tuesday. Fed policymakers indicated the possibility of an additional rate increase prior to year-end, which bolstered the DXY. Market participants are closely monitoring the situation regarding potential discussions between the US and Iran. The US Dollar Index, an index of the value of the US Dollar measured against a basket of six world currencies, currently trades near 100.45 in the early European trading hours on Tuesday. The DXY gains momentum as the US Federal Reserve delivers a rate hike and signals more rate hikes this year. Last week, the US central bank reached a unanimous decision to elevate its benchmark interest rate by 25 basis points, adjusting the target range to 3.75% to 4.00%. This represented the Federal Reserve’s initial increase in interest rates in a three-year period. Fed Chair Kevin Warsh said during the press conference that “the plain fact is that inflation is too high and has been for too long.” He added “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.” Traders are currently assigning approximately 56.5% probability to a rate increase of at least 25 basis points at the Federal Reserve’s October meeting, as indicated by the CME FedWatch tool, an increase from 43.5% the previous week.

On Monday, St. Louis Fed President Alberto Musalem indicated that further rate increases could be required to meet the Fed’s inflation target. Chicago Fed President Austan Goolsbee emphasised that the central bank must not disregard the ongoing and consistent supply shocks. Traders will pay close attention to the developments regarding potential US-Iran discussions at the United Nations General Assembly on Tuesday. President Masoud Pezeshkian is set to head an Iranian delegation at the UN session in New York, coinciding with a resurgence of optimism regarding a diplomatic resolution to the Middle East conflict. US President Donald Trump indicated that he is “probably open to meeting Pezeshkian during the assembly.” Any signs of progress in the negotiations between the US and Iran could enhance risk sentiment and exert downward pressure on the DXY. Deutsche Bank flags a busy day for monetary policy commentary, noting that, beyond scheduled data releases, attention will turn to a slate of central bank speakers. The bank highlights that “we’ll hear from Fed’s Vice Chair Jefferson, the Fed’s Williams and Barkin, ECB President Lagarde, and the ECB’s Kaasik, Nagel, Kocher, Seijpen and Simkus,” suggesting that markets will be closely watching any guidance on the policy outlook from both sides of the Atlantic.

Musalem’s speech scores 8/10 on the FXS Speechtracker, which is modestly above the historical average of 7.4/10, indicating a firmer hawkish tilt compared to the established baseline. The caution that, absent further policy restraint, inflation is expected to persist significantly above the 2% target in the upcoming 18 months-despite core pressures remaining elevated at approximately 3% and businesses anticipating price hikes nearing 3%-highlights a distinct inclination toward implementing additional rate increases that are both timely and gradual. This approach aims to address inflationary pressures stemming from both demand and supply factors, including wider commodity shocks beyond just oil. The characterisation of a labour market around full employment, yet not the primary driver of inflationary pressure, indicates that policy is focused directly on enduring price dynamics rather than on the risk of overheating in employment. The FXS Fed Sentiment Index increased by 0.42 points to 149.96, indicating that the overall Fed sentiment continues to reside firmly in hawkish territory, significantly surpassing the neutral threshold of 100.

This incremental uptick, aligned with the stronger-than-average FXS Speechtracker score, confirms that Musalem’s remarks contribute to a sustained bias toward tighter policy, a backdrop typically supportive of the Dollar against lower-yielding peers. In the daily chart, the near-term bias of the Dollar Index Spot appears to be bullish as the price maintains its position above the 100-day simple moving average and the Bollinger middle band, thereby ensuring that the recent recovery remains well supported. The upper Bollinger band serves as immediate overhead resistance, while a Relative Strength Index (14) reading close to 65 indicates strong positive momentum without entering overbought territory just yet. On the downside, initial support is positioned at the 100-day SMA at 99.90, succeeded by the Bollinger middle band at 99.50, with further support at the lower Bollinger band approximately 98.45. On the topside, a clear break above the upper Bollinger band near 100.60 would open the door for further gains, reinforcing the bullish bias as long as price continues to trade above the clustered moving-average support.