Is the uncertainty in the Middle East escalating further, and is the dollar preparing to rebound?

Huitong Finance APP News — The US dollar index experienced a slight pullback after a previous continuous rally, currently trading around 99.60, indicating that short-term upward momentum has slowed. Although still at relatively high levels overall, the market is beginning to enter a phase of consolidation amid multiple macro factors.

From a fundamental perspective, the Middle East situation remains one of the key variables influencing the dollar’s movement. Market surveys show that the US is actively promoting dialogue with Iran through various channels and proposing multiple plans to ease tensions. However, Iran has yet to show a clear willingness to negotiate and has set its own conditions, emphasizing control over critical energy routes. This keeps the outlook highly uncertain, with risk aversion sentiment fluctuating.

In traditional logic, geopolitical risks usually benefit the dollar, but the current environment shows some divergence. On one hand, safe-haven demand indeed supports the dollar’s strength; on the other hand, rising energy prices due to conflicts are increasing inflationary pressures, which in turn affect the Federal Reserve’s policy path, causing short-term fluctuations in the dollar.

Rising energy prices are boosting inflation expectations, further strengthening market expectations that the Fed will maintain high interest rates. Meanwhile, US economic data show mixed signals: employment and consumption remain resilient, but some leading indicators suggest growth momentum is slowing, putting the Fed under policy balancing pressure.

Institutional views suggest that, amid conflicting inflation and growth targets, the Fed is likely to remain on hold in the short term.

Current interest rate market pricing shows that expectations for rate cuts within the year have significantly cooled, with some funds even reassessing the possibility of future rate hikes. This shift in expectations provides medium-term support for the dollar, but in the short term, due to high market uncertainty, the dollar’s rally pace is restrained.

Additionally, investors are closely watching upcoming US initial jobless claims data to assess labor market conditions. Employment performance will directly influence the Fed’s policy judgment and thus be a key driver of short-term dollar volatility.

From a technical perspective, on the daily chart, the dollar index has regained key support after a correction, maintaining a generally oscillating but slightly bullish structure. The current price is near the short-term moving averages, with the 100 level acting as an important resistance—a psychological round number that has been tested multiple times without a decisive breakthrough. On the downside, 99.00 and 98.50 are recent important support zones; a break below could trigger further correction. The RSI indicator is in the neutral zone, indicating no clear trend has formed yet.

On the 4-hour chart, the dollar index shows a consolidation pattern after a pullback, with a short-term trading range between 99.00 and 100.00. Moving averages are flattening, suggesting weakening trend momentum. The MACD shows signs of a pullback but has not yet formed a sustained bearish structure, indicating the current correction is more technical. If the price reclaims 100, an upward trend could resume; conversely, a break below 99.00 could lead to testing support levels at 98.50 or even 98.00.

Overall, the dollar index is currently driven by a combination of “safe-haven demand + policy uncertainty,” leaning towards short-term consolidation as it awaits new macro data or geopolitical developments for clearer direction.

Summary

The core of the dollar index’s current movement lies in the tug-of-war between inflation expectations and policy paths. Rising energy prices reinforce expectations of high interest rates, providing medium-term support for the dollar. However, geopolitical uncertainties and economic data divergence cause short-term fluctuations. From a technical standpoint, the index remains in a consolidation phase with a slight bullish bias but has not broken through key resistance levels, indicating limited upward momentum. In the near term, focus should be on whether the 100 level can be broken and on US economic data releases. Until a clear direction emerges, consolidation remains the main theme.

(Edited by: Wang Zhiqiang HF013)

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