The US Dollar Index (DXY) fell below the key 103 level on Monday, hitting a three-month low as markets increasingly priced in multiple Federal Reserve rate cuts in 2026, boosting emerging market currencies including the Indian rupee.
Dollar Index Performance
Key metrics for the Dollar Index:
- Current Level: 102.85
- Previous Close: 103.45
- Daily Change: -0.58%
- 52-Week Range: 100.20 – 107.80
Fed Rate Cut Expectations
Market expectations for Fed rate cuts have strengthened following softer US economic data. CME FedWatch tool shows 70% probability of a rate cut at the January FOMC meeting.
Impact on Indian Rupee
The rupee benefited from dollar weakness, trading at 82.45 against the greenback. The currency is up 1.2% over the past week, supported by FII inflows and favorable global sentiment.
Other EM Currencies
Emerging market currencies rallied across the board. The Chinese yuan, Indonesian rupiah, and Brazilian real all posted gains against the dollar.
Bond Market Reaction
US Treasury yields fell in tandem with the dollar. The 10-year yield dropped to 4.05%, its lowest level in four months.
Technical Analysis
With the DXY breaking below the 103 support, technicians see further downside potential toward the 101-102 range in the near term.
RBI Watch
The dollar weakness comes ahead of the RBI’s monetary policy decision on Thursday. A weaker dollar provides additional policy flexibility to the central bank.
