The US Dollar Index (DXY) slipped to about 98.80 in Monday’s Asian session, hovering near three-month lows as markets absorbed the US Treasury’s plan to step up long-end bond buybacks. Treasury Secretary Scott Bessent said the department would double buybacks to $4 billion per operation in a bid to cap rising 30-year yields, a move that has revived concern over the US fiscal outlook. Recent inflation readings have moderated, yet some Federal Reserve (Fed) officials want clearer evidence that price pressures are easing; CME FedWatch shows markets pricing a 41.0% chance of a rate hike at the next meeting, down from 47% a month ago.
Bessent is due to hold a press conference on Monday on new US sanctions against Iran, after President Donald Trump announced what he described as the most severe economic action ever taken against Tehran, raising the prospect of renewed safe-haven support for the USD. Scotiabank strategists argue that efforts to suppress long-term yields leave the Dollar more exposed to fiscal worries. Fed’s Musalem pointed to underlying inflation around 2.5%-3% and cited a lower probability of reaching 2%, while the FXS Fed Sentiment Index fell 0.34 to 132.42, alongside a 7/10 FXS Speechtracker score. Technically, DXY remains capped below the 100-day SMA, with RSI (14) near 30; resistance sits at 99.70, 99.75 and 101.00, while support is seen at 98.50.
Market Reactions and Technical Analysis
We are closely watching the US Dollar Index (DXY) as it slides below the 99.00 threshold to trade near 98.80, driven by growing unease over US fiscal policies. The Treasury’s aggressive move to double its long-bond buybacks to $4 billion per operation has capped yields but is actively dragging the greenback down. For derivative traders, this tells us that the dollar is bearing the brunt of these interventionist policies, creating clear shorting opportunities on brief rallies.
Historically, massive federal debt expansions—with the US national debt estimated to surpass $39 trillion in 2026—have structurally weakened the dollar when paired with yield-capping measures. We can look back to similar yield-curve control policies in the 1940s and the quantitative easing era after 2008 to see that suppressing bond yields inevitably forces currency depreciation. Derivative players should focus on put options or short futures positions, especially as the DXY hovers near its lower Bollinger band of 98.50.
Geopolitical Risks and Trading Strategies
However, we must balance this bearish outlook against sudden safe-haven surges due to escalating geopolitical tensions in the Middle East. With Scott Bessent preparing to announce unprecedented economic sanctions on Iran, any escalations could abruptly reverse the dollar’s slide. We recommend using collar strategies or buying near-the-money call options on the DXY to hedge against these geopolitical spikes.
Even though the market currently prices only a 41% chance of a rate hike at the next meeting, hawkish undertones from Fed officials like Musalem suggest inflation remains sticky between 2.5% and 3%. Technically, the index remains capped under its 100-day simple moving average of 99.70, which serves as a crucial resistance level for setting stop-losses. We advise traders to establish tight stop-losses just above 99.75 while targeting a break below the 98.50 support level in the coming weeks.
