Insights 
VT 
The US Dollar Index (DXY) is trading sideways, hovering above 98.00 amidst ongoing geopolitical and monetary developments. Tensions in the Middle East and expectations for a Federal Reserve rate cut are influencing market sentiment.
President Trump has a two-week period to decide on US military action against Iran, amid European diplomatic efforts. This uncertainty has given the US Dollar modest support as a safe-haven asset.
Federal Reserve Interest Rates
The Federal Reserve maintained interest rates this week, with Chair Jerome Powell noting data dependency and inflation risks due to tariffs. Markets are pricing in a potential rate cut by September.
Global monetary policy is diverging, as some central banks have cut rates, while others remain on hold but dovish. This has temporarily supported the US Dollar through yield differentials.
The DXY is struggling near its 20-day Simple Moving Average at 98.91, with resistance at the 50-day SMA at 99.50. Key support is around 97.61.
The 100.00 level and 23.6% Fibonacci retracement at 100.57 pose critical hurdles for upward momentum. The Dollar Index must overcome the 99.50–100.57 zone to alter the current trend.
Global Foreign Exchange Turnover
The US Dollar accounts for 88% of global foreign exchange turnover, influenced heavily by US monetary policy, especially interest rate changes.
Markets have entered a holding pattern as the Dollar Index hovers between technically sensitive price zones. While the current range seems relatively stable, it is underpinned by fragile assumptions—chiefly, that rate decisions and foreign policy developments unfold as traders expect them to. With Powell emphasising a data-driven stance, we find ourselves in a period where economic releases could shift sentiment abruptly. Each inflation print or employment figure may tip expectations further toward a rate cut or delay it entirely.
Price action around the 98.00 level still reflects indecision, though upside attempts show signs of fatigue just beneath the 99.50 mark. From a technical angle, moving averages are beginning to flatten, confirming the lack of firm directional conviction. However, the relatively shallow pullbacks suggest buyers are stepping in near support, particularly around 97.60. Should this level break, short-term momentum could accelerate downward, returning the Dollar toward early-year benchmarks.
Geopolitical uncertainty, particularly discussions surrounding a possible military response in the Middle East, continues providing a floor under the Dollar. Investors remain sensitive to conflict risk, and this has kept risk-on sentiment in check. While Barker has reiterated that military options are being evaluated, actual movement appears contingent on broader international negotiations. For now, that ambiguity benefits the Dollar, especially in pairs against currencies tied to commodity exports or higher-beta economies.
Meanwhile, monetary policy divergence remains a core driver of yield spreads. Some central banks like the Reserve Bank of Australia and Bank of India have cut rates in response to domestic pressures, artificially widening the gap and maintaining a degree of appeal in holding USD-denominated assets. Although not aggressive in its tone, the Fed’s neutrality is contrasted by more dovish actions elsewhere. This relative stance continues to support the Dollar, particularly in cross-border funding markets.
The real pivot lies in whether futures markets continue to price higher odds for a US rate cut into September. Futures are currently assigning those odds in excess of 60%, but even a small tweak after the next inflation print or wage report could change this landscape quite quickly. That, in turn, would show up in the DXY’s movement between our current channel resistance at 99.50 and the psychological ceiling of 100.00.
From a practical standpoint, reaction around this 99.50 to 100.57 zone will be telling. Price rejection here would confirm buyer exhaustion and might bring the lower end of our range into focus. On the contrary, consolidation above the 100.00 threshold—particularly a daily close—would suggest a reassessment is underway, possibly linked to hardening expectations that the Fed’s tightening pause could extend beyond September.
Watching Treasury yield spreads, especially the 2-year to 10-year segment, remains essential. If short-term rates edge lower while longer tenors hold steady or rise, this steepening would reflect softer Fed rate expectations while preserving longer-term growth premiums. Historically, that leads to Dollar softness—but only when paired with an improvement in global risk sentiment, which is not yet apparent with current trade friction and geopolitical stress remaining unresolved.
Lastly, with the Dollar representing 88% of all FX turnover globally, shifts in its direction affect not only USD pairs but broader G10 and EM volatility patterns. For us, sustained moves through these technical inflection points should be interpreted in the context of rate cut probabilities, economic resilience, and headline risk tied to fiscal and international policy decisions. The coming data releases, combined with Powell’s reiterated dependence on them, will set the tempo—but the reaction from leveraged positions may well recalibrate faster than traditionally expected.
