Back to the Hundred Point Mark: Driven by "Expectations + Yields"
In November, after a stepwise rebound since mid-September, the US dollar index has once again reached the 100 mark. This movement is driven by two main factors: firstly, expectations for another interest rate cut in December have significantly cooled, suppressing the previous "linear easing" narrative; secondly, long-term US Treasury yields are rising in line with inflation and nominal growth expectations, providing a yield differential in favor of the dollar. The dollar's return to the "hundred-point club" appears more like a re-pricing of the interest rate path and risk compensation.
Mixed Messaging Amplifies Uncertainty
Within the Federal Reserve, there is a clearer division of views on the pace and magnitude of rate cuts: proponents of faster easing emphasize "policy is still restrictive, and credit is under marginal pressure," while the cautious camp argues that "the credibility of the inflation target cannot be compromised, and rates should fall in tandem with inflation, not preemptively." This divergence hasn't changed the medium-term consensus of an eventual downward trend but has significantly increased the frequency and magnitude of short-term volatility, making the dollar more sensitive to data releases.
Ending the Balance Sheet Reduction: Improved Liquidity Enhances Dollar Flexibility
As the window to end balance sheet reduction approaches in December, quantitative tightening is entering its final phase. The passive slowing of the balance sheet indicates reduced liquidity friction within the reserve system, which is expected to ease the "tight yet urgent" state of dollar funding. In the forex market, improved liquidity expectations combined with fluctuating interest rate expectations create a dual framework of "support below, constraint above" for the dollar.
Data Gaps and Risk Sentiment: Two Clues to Dominating Pace
Towards the end of the year, employment and inflation data remain core variables anchoring the interest rate path: if employment cools further and the core inflation decline slope increases, bets on rate cuts will revive, suppressing the dollar's strength; conversely, if demand resilience exceeds expectations, the dollar may continue to fluctuate above the hundred-point mark. Meanwhile, the global risk appetite still exhibits a "seesaw effect" on the dollar: when risk aversion rises, funds flow back to dollar assets, while strong risk assets provide relative support to non-dollar and commodity currencies.
Curve and Sector Interaction: The "Second Layer" Impact on Exchange Rates
The rise in long-term yields enhances the dollar's relative returns, while changes in real interest rates more directly affect the valuation center of precious metals and growth assets. For exporting economies and commodities-related currencies, a stronger dollar combined with high interest rates will be transmitted to exchange rates and asset prices through trade conditions and financing costs; conversely, once real interest rates fall and the dollar retreats, the aforementioned pressure will be alleviated temporarily.
Year-End Watch List: Three "Thermometers"
Firstly, Forward Guidance and Meeting Minutes: Slight adjustments in the "hawk/dove" wording will first affect curve endpoints and dollar momentum.
Secondly, Employment and Inflation Chains: The linked changes in wages, core services, and rents determine market confidence in "another cut."
Thirdly, Fiscal and Supply-Side Factors: The pace of bond issuance, maturity structure, and auction results directly affect yield spreads and the strength of the dollar.
Sustained Strength Unlikely, Pace Still Key
From a longer-term perspective, factors such as the downward trajectory of interest rates, rising fiscal deficits and debts, and global reserve diversification suggest that the dollar is likely to shift to a moderate weakening track around 2026. However, until then, "policy divergence + liquidity turning point + data elasticity" will continue to provide an active trading range for the dollar. For investors, following trends without chasing, anchoring on data, and using position management to hedge uncertainty might be more prudent strategies heading into the year-end.
