The U.S. dollar index remained under pressure during Friday's Asian trading session. The DXY, which measures the dollar against a basket of six major currencies, fell approximately 0.3% to around 100.60, hitting a new low for nearly three weeks. Markets are reassessing the impact of shifting U.S.-Iran relations, the future path of Federal Reserve policy, and global risk sentiment on the dollar's trajectory.
The recent weakness in the dollar is primarily attributed to a decline in safe-haven demand. Earlier escalations in U.S.-Iran tensions had channeled funds into traditional safe assets like the dollar, but the latest reports indicate signs of easing tensions. Market information suggests the U.S. remains committed to advancing a previously agreed framework of understanding with Iran, with technical-level communications still ongoing.
Although U.S. President Donald Trump had previously stated the relevant agreement was over, recent remarks revealing Iran's pursuit of a deal have led markets to reassess the likelihood of further conflict expansion. These signs of a thaw in U.S.-Iran relations have diminished the dollar's safe-haven appeal, becoming a key factor driving its consecutive declines.
In terms of major currency performance, the dollar weakened against most peers, with the Japanese yen showing relative strength, indicating some safe-haven flows are returning to Asian currencies. Simultaneously, non-dollar currencies like the euro, British pound, and Australian dollar found some room to rebound, reflecting an improvement in market risk appetite. However, the dollar's downtrend remains constrained by developments in the energy market. While Middle East tensions show signs of easing, supply risks are not entirely eliminated, and crude oil prices remain elevated. If energy supplies face further disruption, rising oil prices could reignite global inflation expectations.
Higher energy prices could slow the disinflation process and limit the Fed's room for interest rate cuts. As inflationary pressures may re-accelerate, Fed officials might need to maintain caution on interest rate policy, which would provide some support for the dollar. On the monetary policy front, Federal Reserve Chair Kevin Warsh recently outlined the arrangement of five working groups focusing on policy communication, balance sheet management, economic data quality, productivity and employment, and refining the inflation framework. This indicates the Fed is still evaluating its future policy adjustment path, while market consensus on the timing of rate cuts remains divided.
Markets continue to focus on upcoming U.S. economic data and subsequent commentary from Fed officials. If economic data continues to show slowing growth, the dollar could face further pressure; however, if rising energy prices cause inflation expectations to heat up again, the dollar may find temporary support for a rebound.
From a daily chart perspective, the dollar index has been in a sustained retreat, currently falling near 100.60, with clear short-term bearish pressure. The daily moving average structure shows the index has broken below some short-term support levels, indicating weak market momentum. Key support below is seen at the 100.00 psychological level and the 99.50 area; a break below could lead to a further test near 98.80. Resistance above is observed in the 101.20 to 101.50 zone; a firm hold above this area could alleviate short-term downward pressure. The MACD indicator suggests bearish momentum still dominates, but caution is warranted for a technical rebound as it approaches key support areas. Looking at the 4-hour cycle, the dollar index continues to move within a descending channel, with short-cycle moving averages pointing downward, indicating sellers currently hold the initiative. The RSI indicator is in a weak zone, reflecting a strong bearish sentiment, but it also suggests the potential for a short-term oversold correction. If the price fails to break below the 100.00 support, a rebound testing resistance near 101.00 is possible; an effective break below could open further downside.
The recent decline in the dollar is primarily driven by easing U.S.-Iran tensions and reduced safe-haven demand, though inflation risks from rising energy prices continue to provide support. The market has not fully confirmed a shift in Fed policy, with interest rate expectations remaining the core factor influencing the dollar's medium-term trajectory. In the short term, the dollar index is likely to continue being influenced by changes in risk sentiment. If geopolitical tensions continue to ease alongside weakening U.S. economic data, the dollar may remain under pressure. However, if rising oil prices rekindle inflation expectations, leading to a prolonged period of high Fed rates, the dollar could find opportunities for a rebound. Investors should closely monitor inflation data, energy market developments, and signals from Federal Reserve policy.
Comments