US Treasury yields remain elevated supporting USD long positions, beware of geopolitical situation reversals in the short term

Reuters Finance App News — On Wednesday Asian trading hours, the US dollar index continued its rebound, trading around 99.30, showing strong resilience. Despite rising market expectations for easing tensions in the Middle East, the overall performance of the dollar remains steady, reflecting a shift in driving logic from safe-haven sentiment to interest rates and fundamentals pricing.

Market surveys indicate that the US is actively engaging in diplomatic negotiations with Iran, including proposing multiple solutions and promoting phased ceasefire arrangements. This development has somewhat alleviated concerns about escalating conflict, theoretically weakening the dollar’s safe-haven demand. However, in reality, Iran denies any substantial breakthroughs, and both sides are still communicating through third parties, geopolitical risks remain highly uncertain.

In this context, the dollar has not shown significant weakness, mainly because market focus is gradually shifting to monetary policy paths. Recent statements from Federal Reserve officials show that current inflation pressures remain above target levels, and policy adjustments need to be cautious. Chicago Fed President Goolsbee pointed out that energy price shocks could pose risks to both inflation and employment goals, directly affecting the pace of rate cuts.

Meanwhile, Fed Governor Bostic stated that before inflation returns to the target level, interest rates may need to stay at higher levels for a longer period. This statement reinforces market expectations of “prolonged high interest rates,” supporting the dollar’s strength.

Market pricing shows that expectations for Fed rate cuts have significantly cooled. Uncertainty about the rate cut path has become a core factor supporting the dollar’s strength. At the same time, US Treasury yields remain high, further boosting the appeal of dollar assets and exerting pressure on non-US currencies.

It is important to note that the current dollar trend exhibits typical “dual logic” characteristics. On one hand, easing geopolitical tensions reduce safe-haven demand; on the other hand, interest rate and yield factors continue to provide support. This interplay of bullish and bearish forces makes the dollar difficult to form a one-sided trend, more often resulting in high-level oscillations.

From market sentiment, investors are gradually shifting from geopolitical-driven to fundamentals-driven. As negotiations progress, markets will pay more attention to inflation data, Fed policy paths, and economic growth prospects. The dollar’s pricing logic is transitioning from “safe-haven driven” to “interest rate driven.”

Technically, on the daily chart, the dollar index remains in a high-range, maintaining above 99, indicating strong support. Previous pullbacks failed to break key support levels, and momentum indicators are gradually recovering, suggesting bulls still hold some advantage. Around 100.00 is a key resistance level, and a break above could further strengthen the upward structure; 98.50 is an important support, corresponding to the recent consolidation lower boundary.

On the 4-hour chart, the short-term trend shows a oscillating upward pattern, with higher lows but limited upside, indicating market caution. Short-term support is around 99.00, while the 99.80 area acts as a phase resistance. A breakout of this range could open new volatility space.

Summary

The current strength of the dollar index is more driven by interest rate expectations and yield support rather than purely safe-haven demand. As geopolitical tensions ease, market focus is returning to fundamentals. In the short term, the dollar is likely to remain oscillating at high levels, but medium-term trends will depend on inflation trajectories and Fed policy pace. Investors should pay close attention to changes in rate cut expectations and key technical breakouts.

(Edited by: Wang Zhiqiang HF013)

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