The US Dollar Index (DXY) edged lower in Asian trading on Tuesday, hovering around 101.20. After two consecutive days of gains, some investors opted to take profits, while awaiting the release of key US inflation data, leading the dollar into a short-term consolidation phase. However, with geopolitical risks in the Middle East continuing to intensify, the dollar remains broadly supported by safe-haven demand, limiting the extent of its pullback.
Tensions between the US and Iran have worsened. The US Central Command announced a new round of precision strikes on multiple Iranian military targets, stating that over 50,000 US troops are currently deployed in the Middle East to ensure regional military operations and energy transport security. Concurrently, Iran's Islamic Revolutionary Guard Corps reported that two supertankers suspected of violating warnings and entering dangerous waters have lost navigational capability in the Strait of Hormuz. It warned that cooperation with US actions by relevant countries could further delay the resumption of normal traffic through the strait, posing greater supply risks to the global energy market. The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments. As regional tensions escalate, international oil prices remain strong, with market concerns over potential energy supply disruptions and a resurgence of global inflation significantly heightened. Rising energy prices not only increase corporate production costs but could also push consumer price levels higher again, thereby influencing the future monetary policy paths of major global central banks.
Markets widely believe that if energy prices continue to rise, US inflationary pressures could intensify again, increasing the necessity for the Federal Reserve to maintain restrictive monetary policy or even tighten it further. Current market expectations for Fed policy have clearly shifted towards a more hawkish stance, with investors anticipating the possibility of further tightening before year-end, which also provides fundamental support for the dollar.
On another front, investors are closely watching the upcoming release of the US Consumer Price Index (CPI) data for June. Markets expect the US headline CPI for June to show a month-on-month change of approximately -0.1%, while the core CPI is forecast to grow 0.3% month-on-month. If core inflation remains elevated, it would further strengthen expectations that the Fed will maintain its high-interest-rate policy, potentially giving the dollar renewed upward momentum. Conversely, if the inflation data falls below market expectations, it could weaken the dollar's performance and alleviate concerns about further policy tightening.
Additionally, Federal Reserve Chair Kevin Warsh is scheduled to testify before Congress, with his comments on inflation, employment, and the future interest rate path set to be highly scrutinized by the market. Should his remarks continue to signal a hawkish stance, it would further bolster the dollar's trend. If the tone is more cautious, it could prompt markets to readjust rate expectations, potentially leading to greater short-term volatility for the dollar.
From a technical perspective, the daily chart for the Dollar Index still shows a consolidating but relatively strong pattern, with prices moving near major moving averages, indicating no significant change in the medium- to long-term trend. The MACD indicator maintains a bullish crossover, though the red histogram has narrowed slightly, suggesting some deceleration in upward momentum. The RSI indicator is around 55, indicating the market remains in a relatively strong zone. If the index can firmly reclaim ground above 101.50, it could attempt to challenge resistance zones at 102.00 and 102.50. On the downside, key support levels to watch are 100.80 and 100.30; as long as these critical support levels hold, the overall rebound trend is likely to continue. Looking at the 4-hour chart, the Dollar Index is in a short-term high-level consolidation phase. The MACD indicator's red histogram continues to narrow, indicating some weakening in bullish momentum, though the lines remain above the zero axis. The RSI has retreated to around 50, reflecting a rise in market caution. If the US CPI data comes in above market expectations and the Fed Chair signals a hawkish stance, the Dollar Index could break above 101.50 and further test 102.00. If the data proves weak, the index might fall back to test support areas around 100.80 and 100.30, with short-term volatility expected to increase significantly.
The Dollar Index is currently in a consolidation phase ahead of significant event announcements. Despite a short-term pullback, the dollar retains strong support from safe-haven demand fueled by escalating Middle East tensions and inflation concerns stemming from rising international oil prices. The US June CPI data and the testimony from Federal Reserve Chair Kevin Warsh will be key factors determining the dollar's next directional move. If inflation proves persistent, expectations for the Fed to maintain high rates will likely intensify, potentially allowing the dollar to sustain its strength. If inflation shows a clear slowdown, the dollar could face some adjustment pressure, and market risk appetite might see a phase of recovery.
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