The US Dollar Index (DXY) is moving sideways, hovering above 98.00 due to ongoing geopolitical and monetary events. Tensions in the Middle East and hopes for a Federal Reserve rate cut are shaping market feelings. President Trump has two weeks to decide on military action against Iran, while European diplomats work on a solution. This uncertainty provides modest support for the US Dollar as a safe-haven asset.

Federal Reserve Interest Rates

This week, the Federal Reserve decided to keep interest rates steady. Chair Jerome Powell highlighted the importance of data and inflation risks from tariffs. Markets are now anticipating a possible rate cut by September. Globally, monetary policies are diverging. Some central banks have lowered rates, while others remain cautious but dovish. This situation has temporarily boosted the US Dollar through differences in yields. The DXY is currently struggling near its 20-day Simple Moving Average at 98.91, facing resistance around the 50-day SMA at 99.50. Key support is found around 97.61. The levels of 100.00 and the 23.6% Fibonacci retracement at 100.57 are important barriers for any upward movement. The Dollar Index needs to break through the 99.50–100.57 range to change the current trend.

Global Foreign Exchange Turnover

The US Dollar makes up 88% of global foreign exchange turnover, heavily impacted by US monetary policy, especially interest rate changes. Currently, markets are in a holding pattern as the Dollar Index remains in sensitive price zones. Although the current range seems stable, it relies on delicate assumptions—that rate decisions and foreign policy will go as expected. With Powell stressing a data-driven approach, we are in a phase where economic data could quickly change market sentiment. Each inflation report or employment figure could raise expectations for a rate cut or delay it. Price action around the 98.00 level shows uncertainty, but attempts to go higher are losing strength just below the 99.50 mark. Technically, moving averages are starting to flatten, indicating a lack of strong direction. However, the small pullbacks suggest that buyers are entering near support, especially around 97.60. If this level does break, short-term momentum could push the Dollar lower, returning it to earlier benchmarks from this year. Geopolitical uncertainty, particularly regarding potential military actions in the Middle East, continues to support the Dollar. Investors are cautious of conflict risks, which keeps risk-on sentiment limited. While Barker has stated that military options are being considered, actual actions appear dependent on broader international talks. For now, this ambiguity supports the Dollar, particularly against currencies linked to commodity exports or more volatile economies. At the same time, differing monetary policies remain a key driver of yield spreads. Some central banks, like the Reserve Bank of Australia and the Bank of India, have cut rates to address domestic issues, widening the yield gap and making USD-denominated assets more appealing. The Fed’s neutral stance contrasts with more dovish actions elsewhere, continuing to support the Dollar in funding markets across borders. The main focus is whether futures markets will keep pricing in a higher chance of a US rate cut for September. Currently, futures assign those odds at over 60%. However, even a slight change following the next inflation or wage report could quickly alter this landscape, impacting the DXY’s movement between the current resistance at 99.50 and the psychological level at 100.00. From a practical standpoint, how prices react in the 99.50 to 100.57 range will be significant. If prices reject this range, it would indicate buyer fatigue and might bring the lower end of our range back into play. On the other hand, a daily close above 100.00 would suggest a reassessment is taking place, possibly linked to expectations that the Fed may pause rate tightening beyond September. Monitoring Treasury yield spreads, particularly between the 2-year and 10-year segments, remains important. If short-term rates decline while longer-term rates steady or rise, this steepening reflects softer Fed rate expectations while maintaining longer-term growth prospects. Historically, this leads to a weaker Dollar—but only when combined with improved global risk sentiment, which is not evident given ongoing trade tensions and geopolitical stress. Lastly, with the Dollar accounting for 88% of global FX turnover, its movements impact not only USD pairs but also volatility patterns in G10 and EM markets. Ongoing moves through these technical points should be viewed in light of rate cut probabilities, economic strength, and risks associated with fiscal and international policies. Upcoming data releases, along with Powell’s emphasis on data dependence, will set the pace—but the reactions from leveraged positions may adjust quicker than expected. Create your live VT Markets account and start trading now.

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