US Dollar Index Forecast: Treasury Yields Break 5%. Is DXY Heading for 104?

US Dollar IndexCAPITALCOM:DXY

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1. 1$104.00 Upside targetNext upside target if yields rise and EUR/USD breaks $1.10
2. 2$103.00 SupportDXY could slip below 103 if yields retreat
3. 3$103.18 Multi-month high · Key levelFriday level near the highest since April 2025

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The US Dollar Index held near 103.18 early on Friday, November 13, as Treasury yields climbed and traders reconsidered how aggressively the Federal Reserve might raise interest rates. The dollar is heading for its strongest week since September. But another climb toward 104 may depend as much on whether the euro breaks below $1.10 as on what the Fed says next.

Why Is the US Dollar Index Rising?

The clearest sign of the shift came from the bond market. The US two-year Treasury yield gained 34 basis points in two sessions, its sharpest such rise in three and a half years, and briefly reached 4.89% on Friday. The move followed an October core inflation reading of 0.3%, above the 0.2% economists had expected, and a jobs report showing employers added 165,000 positions. Together, those figures give the Fed room to keep tightening without an obvious deterioration in hiring.

New York Fed President John Williams added to that case on Thursday, saying further action would be needed to bring inflation back to 2%, though he gave no timetable. A quarter-point December hike remains the market’s main expectation. CME FedWatch put the chance of a half-point move at 14.5% in an early Friday snapshot cited by Reuters, up from zero a week earlier. That shift helps explain why the dollar has gained even though a bigger hike is still an outside bet.

Also read: Our GBP/USD forecast explains why the pound fell toward $1.32 despite a Bank of England rate hike.

Why EUR/USD at $1.10 Matters More to DXY Than USD/JPY at 160

The yen’s return to 160 per dollar has put Japanese intervention back in the headlines. For the Dollar Index, though, the euro matters more: it accounts for 57.6% of the basket, compared with 13.6% for the yen. EUR/USD was near $1.1060 early Friday, close to its weakest level since April 2025. Even if Tokyo’s warnings curb the dollar’s rise against the yen, further euro losses could keep DXY climbing.

The European Central Bank held its deposit rate at 2.50% in October. It warned that higher energy costs threaten to raise inflation and slow growth at the same time. That leaves the euro with a problem: an oil shock may increase pressure on the ECB to act, but it can also weaken the economy it is trying to protect. Brent slipped to $95.54 early Friday after jumping 3.3% on Thursday, a reminder that oil’s contribution to the dollar rally can change quickly.

US Dollar Index Outlook: What Would Take DXY to 104?

A producer inflation reading above the 0.4% forecast could extend the rally if it pushes two-year yields higher and sends EUR/USD through $1.10. A softer print would test how much of the week’s move is already priced in. If two-year yields retreat and the euro holds above $1.10, DXY could slip back below 103 instead.

Friday’s report can move the dollar, but it won’t settle the December rate decision. The Fed gets another jobs report on December 4 before its December 8–9 meeting. Until then, the better test of the rally is whether US yields stay high when the next inflation or employment report gives traders a reason to sell the dollar.

Also read: Our USD/JPY forecast looks at whether Japan could step in again after the yen briefly weakened past 160 per dollar.

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