Insights 
VT 
The US Dollar Index (DXY) that measures the USD against six major currencies is experiencing a decline of around 1.3% over three days, trading near 99.58. Recent challenges faced by the Trump administration, both internationally and domestically, have influenced this downturn.
President Trump has been trying to pursue a new nuclear deal with Iran amid constraints in his diplomatic reach, especially concerning Israel’s stance. Domestically, Trump faces hurdles with his tax-cut bill, encountering resistance from lawmakers over the state and local tax (SALT) deduction cap.
Federal Reserve Interest Rate Outlook
The odds of a Federal Reserve interest rate cut in June are just 5.4%, while the July meeting shows a 26.9% chance of lower rates. Market sentiment is further dampened as US 10-year yields hover at 4.53%, and US equities face losses between 0.50% to 1.00%.
The DXY target resistances are at 100.22 and 101.90, with 103.18 serving as a crucial upper threshold if the USD strengthens. If the DXY declines further, the potential target levels are 97.91, 97.73, and below 95.25, last seen in 2022.
The “Dot Plot” by the Federal Open Market Committee offers insights into Fed officials’ future interest rate expectations. Changes in these projections can affect USD valuation with anticipated higher rates boosting USD.
With the US Dollar Index continuing to hover near 99.58 and recording a 1.3% slide over the past three sessions, there’s a tangible shift in sentiment that’s starting to solidify in fixed income and foreign exchange markets. While softening pressure on USD may appear tied to isolated headlines, we see the movement as a product of broader policy divergence and investor doubt about future rate paths. Greene’s administration-related issues—both overseas in relation to Iran and onshore around fiscal hurdles with tax revisions—are introducing further uncertainty that’s bleeding into capital flows.
Short-end rate expectations remain fairly contained with the June Federal Reserve meeting priced with less than a 6% chance of a cut. However, further out, the market is placing roughly a one in four probability on a July adjustment lower. Against this backdrop, 10-year Treasury yields holding steady around 4.53% suggests that a portion of rate cut expectations may already be priced in, but downside risk remains, especially if confidence erodes further. The bond market seems to be leaning toward a cautious stance, reflecting longer-term positioning rather than reacting to temporary fluctuations.
Equities too, have felt the weight, with benchmarks shaving off as much as 1% in recent sessions. Losses in equities and a dip in USD aren’t coincidental—they both speak to concerns about the US macro narrative slipping from earlier confidence levels. Where equity weakness aligns with dollar softness is at the juncture of “real” yield compression, dragging on carry appeal and shifting tactical plays within hedge funds and larger institutional flows.
Technical Analysis Of DXY
On the technical side, DXY is inching closer to support areas we haven’t seen since the tail-end of 2022. Levels at 97.91 and 97.73 become more vulnerable if momentum carries the current trend—both of these zones are structurally relevant from previous volume clusters. Beyond that, slippage toward 95.25 would indicate a broader shift in global reserve demand and possibly adjustments in macro hedging strategies.
Meanwhile, what’s often overlooked in policy projection is the role of the FOMC’s “dot plot.” This quarterly outlook shows how individual members view rate trajectories. It’s data that doesn’t move markets immediately in a loud fashion, but it drives expectations under the surface. If forward guidance continues to lean towards dovish recalibrations, USD performance will be challenging unless offset by weaker peers or fresh risk-off flows.
Price action around 100.22 and 101.90 offers potential areas for retracement bids if near-term sentiment shifts. Should DXY find traction and test above 103.18, it would likely require firming US data or a geopolitical escalation firm enough to renew haven demand. As it stands, traders would need to await developments before leaning into high conviction dollar long setups; carry trades could see short-term rebalancing instead.
We currently observe volume thinning out during Asian hours, indicating reduced conviction during the global handover. Options volatility also remains relatively subdued, suggesting that while directional bias leans bearish, traders have not positioned for outsized moves just yet.
Therefore, upcoming rate discussions and data releases in the US will hold high relevance for those managing exposure to rate-sensitive instruments. Adjustments in yield curves, particularly the 2-10 spread steepening, will offer cues on whether expectations are shifting from soft landing to a more pronounced deceleration. These will influence how duration trades are recalibrated and echoed across funding currencies.
In this environment, position risk should remain measured, as premature positioning could result in quick reversals, especially if major central banks signal implications for policy synchronisation. Managing sensitivity to USD exposure through defined risk thresholds, rather than directional overconfidence, remains the more sustainable approach for now.
