Dollar strength rattles global Markets: what to watch for the USD

[Redator]

The US Dollar has been rallying steadily since its pre-FOMC lows, with Powell’s not-so-dovish speech last week marking the start of a V-shape reversal from the sharp pre-meeting downfall.

Despite another appearance from the Fed Chair at a Rhode Island conference on Tuesday—where his strong emphasis on employment could have been read as a dovish catalyst—markets didn’t budge.

Instead, the DXY finished higher that day, signaling that markets already priced in Powell’s words and participants are now looking for something else.

The decisive move came from this morning's Jobless Claims beat, combined with even higher Q2 GDP, which markets saw as another reason to extend the Dollar’s buyback.

The greenback is up roughly 0.40% on the session, reclaiming a key pivotal level that had been holding back momentum.

Some technical aspects warrant signs of change in the previous trend. The question will now be whether the change will be more temporary or the start of a new trend.

The index’s double bottom, formed right ahead of last Wednesday’s FOMC meeting, is now acting as a solid base.

Layered onto this market backdrop is a strangely tense geopolitical environment.

Nothing major has erupted yet, but Eastern European nations continue to report threats from Russia, and US Secretary of War (precedingly Secretary of Defense) Pete Hegseth has convoked all generals for a meeting next week—no reason announced.

Whether this is an operational matter or a potential political headwind, it adds a layer of uncertainty that could further bolster dollar demand.

All in all, the US dollar rally is changing current market flows, and particularly when looking at the charts of the first three quarters, any higher continuation may continue rewire markets quite remarkably.

With some geopolitics quietly simmering and a few technical signs, one can expect lots of change going forward.

Read More:

• What’s happening in this volatile session? A look around global markets
• Is the Euro trade still on? Outlook vs USD, CAD and CHF

Before anything, let's have a look at the US Yields to see what's the story with the Federal Reserve expected cuts since the beginning of August.

US 2Y Yield

US 2-Year Yield, September 25, 2025 – Source: TradingView

We spot a rejection zone that has formed since FOMC right around the 3.50% mark, with the 2-Year Yield now up above 10 bps (basis points) since the Wednesday FOMC.

Failing to breach the Liberation day lows (3.45%), a more positive picture is drawing from the latest round of US data which reduces angst about the labor market, hence less need for rate cuts.

The dollar becomes more attractive as yields increase, but the story is more complex.

Markets might be getting afraid that still extreme deficits will prevent an economy slowdown.

It is for that reason that FED speakers keep mentioning their decision making as data dependent, which in turns provides more confidence in the Federal Reserve's independence, hence an increase dollar demand.

The daily FX picture is pretty bloody for Dollar bears

Daily FX picture, September 25, 2025 – Source: TradingView

Dollar Index Multi-timeframe outlook

DXY Daily Chart

Dollar Index (DXY) Daily chart, September 25, 2025 – Source: TradingView

A week after the FOMC candle, the double bottom got confirmed by the following price action: The DXY is up 2.42% since marking new 2025 lows at 96.20.

Today's huge +0.70% performance easily broke through previous highs and now goes to test August 1 highs (before the huge miss in the July NFP).

The upcoming price action will have a huge influence on other assets, particularly in the case of a dollar breakout.

A Head and Shoulders pattern has formed and time will tell if it will complete – The fundamentals do seem to corroborate with that theme for now..

Let's have a closer look to see more details.

DXY 4H Chart

Dollar Index (DXY) 4H chart, September 25, 2025 – Source: TradingView

Prices have broken and retested the August downward trend before flying higher in today's session.

Ongoing mean-reversion gives the USD a break in its ascend.

Participant will now look to see if prices get rejected much further, with a consolidation near today's highs giving increased odds of upside breakout.

Such a scenario could point to 99.25, target of the Head & Shoulders or even higher, depending on how strong the price action gets.

Positioning in the Dollar is always very complex and leads to tricky action.

Safe Trades!

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