Inflation fears driven by rising oil prices are holding back the pullback in US Treasury yields and supporting the dollar

The US Dollar Index (DXY), which tracks the dollar's value against a basket of currencies, is consolidating near yesterday's high — the strongest level since April 2025 — and appears set for a confident third week of gains as traders await key monthly US employment data.

The nonfarm payrolls (NFP) report for September is expected to show about 90,000 new jobs, a notable slowdown from the previous month's 162,000, while the unemployment rate is forecast to remain at 4.1%. The annual wage-growth metric (change in average hourly earnings) will also be watched closely for clues about the Fed's future policy, especially as markets have trimmed the odds of an October rate hike — a dynamic that could meaningfully move the DXY.

Ahead of those reports, the ISM reported on Thursday that US manufacturing activity expanded for the ninth consecutive month in September. A deeper look at the survey showed commodity price pressures rising for the 24th straight month. Those conditions amplify inflationary risks tied to volatile oil prices and are limiting the retracement of US sovereign yields that had been seen earlier. Moreover, geopolitical uncertainty stemming from US–Iran tensions continues to support the US dollar as a safe-haven asset, which benefits dollar bulls.

Against the backdrop of the Middle East conflict, the Wall Street Journal reported that the Pentagon may soon deploy a third carrier strike group to the Persian Gulf along with 10,000 sailors and marines — a decision taken after President Donald Trump warned of possible military escalation with Iran after the November midterms. At the same time, Iran's PGSA has confirmed recent attacks on several tankers in the Strait of Hormuz. These factors increase the geopolitical risk premium and continue to underpin a constructive outlook for the DXY.

Technically, the DXY is comfortably trading above key moving averages and has cleared the round level at 102.00. Resistance sits at 102.22 and support at 101.76. Oscillators are positive, although the RSI shows overbought readings, indicating consolidation. The path of least resistance is to the upside.