The US Dollar Index remained under pressure during Wednesday's Asian trading session, currently trading near 99.05, extending its decline from the previous session. The primary factor driving the dollar's weakness stems from a temporary easing of tensions in the Middle East. The US President announced a two-week suspension of military action against Iran, a decision that significantly dampened market demand for safe-haven assets. A foreign exchange strategist noted, "With the short-term de-escalation of conflict, market risk appetite has recovered, markedly reducing the appeal of the US dollar as a safe-haven asset."
Regarding the event's progression, this suspension of action comes with conditions, namely that Iran must reopen the Strait of Hormuz to traffic. Iranian authorities stated that, in coordination with its armed forces, it would allow safe passage through this critical waterway over the next two weeks. This statement has somewhat alleviated market concerns about energy supply disruptions, thereby weakening the logic for the dollar's safe-haven support. The Strait of Hormuz handles approximately 20% of global seaborne energy transport, and its operational status directly impacts global market stability expectations. As expectations for the resumption of traffic through this strait grow, market risk sentiment has noticeably improved, with capital flowing from safe-haven assets to riskier assets, further pressuring the dollar's performance. Simultaneously, market focus is gradually shifting towards the upcoming release of the Federal Reserve's meeting minutes. These minutes are expected to reveal the policymakers' assessment of recent energy shocks and the inflation trajectory, thereby providing clues about future policy direction. Particularly against the backdrop of heightened energy price volatility, markets are hoping to glean more information from the minutes regarding the persistence of inflation and the path for interest rates. Some institutional views suggest, "If the minutes convey a hawkish signal, the dollar might receive temporary support, but the overall trend will still depend on changes in risk sentiment." From the perspective of interest rate expectations, the market remains divided on the policy path. According to market surveys, current market pricing implies about a 40% probability of an interest rate cut within the year, an expectation that somewhat limits the dollar's upside potential. If subsequent data further confirms an economic slowdown or a decline in inflation, expectations for rate cuts could intensify, posing continued pressure on the dollar. Analyzing from a market sentiment angle, the current movement of the dollar is clearly influenced by the dual impact of a "weakening safe-haven attribute" and "rising policy uncertainty." On one hand, the easing of geopolitical risks reduces demand for the dollar; on the other hand, the unclear path of Federal Reserve policy keeps investors cautious. From a technical standpoint, the daily chart structure indicates that the Dollar Index has entered a weak consolidation pattern after retreating from its highs, having now fallen below the short-term equilibrium range, suggesting an overall shift from strength to weakness. The area around 98.50 constitutes a key support level; a further break below this could open new downside space. Resistance above is concentrated around the psychological and technical level of 100. In terms of momentum, bearish forces are gradually strengthening but have not yet formed a one-sided trend. Observing the 4-hour chart, the short-term structure shows a pattern of oscillating decline. If rebounds fail to break above the 100 level, the index is likely to maintain its weak consolidation; an unexpected recovery above this level could trigger a technical rebound.
Overall, the US Dollar Index is currently at a critical juncture, influenced by an interplay of fundamental factors and market sentiment. Should geopolitical tensions ease further and the Fed signal a dovish stance, the dollar could extend its decline. Conversely, if policy signals lean hawkish or tensions re-escalate, the dollar still possesses room for a rebound. The core driver behind this round of dollar weakness lies in reduced safe-haven demand due to eased Middle East tensions, coupled with market uncertainty regarding the Federal Reserve's policy path, putting short-term pressure on the currency. Structurally, the dollar's trajectory is gradually shifting from being driven solely by safe-haven flows to a dual-driver model of "policy + sentiment." Whether the dollar can stabilize and recover will depend on two key variables: first, whether geopolitical risks continue to subside, and second, whether the Federal Reserve provides clearer policy signals. Against this backdrop, the dollar may maintain a range-bound pattern in the short term, while its medium to long-term direction still requires further confirmation from macroeconomic data.
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