Forecast of the USD exchange rate trend for 2026: Can the U.S. Dollar Index hold the 100 mark in the second half of the year?

On July 14, 2026, the U.S. Dollar Index (DXY) held steady in the Asian and European trading sessions in the 101.20 to 101.30 range. In the prior trading day, the DXY rose by 0.34% to 101.31. This price level sits in the highest zone since 2026—by the end of June, the DXY had gained 2.97% versus the end of the previous year.

Entering the second half of the year, the USD exchange rate outlook faces the cross-impact of multiple variables: the Fed’s hawkish shift in its policy path, the actual trajectory of U.S. inflation data, the ongoing escalation of geopolitical conflict in the Middle East, and the structural weakness of major non-USD currencies. Together, these factors form the core analytical framework for forecasting the USD exchange rate’s performance in 2026’s second half.

What level is the current pricing state of the U.S. Dollar Index at

In terms of price positioning, the DXY has maintained an upward trend since the May monthly swing low. Technically, the 100.50 to 100.55 area has shifted from a prior resistance level to a support level, and the 50-day simple moving average is around 99.92. The Relative Strength Index (RSI) is 60.54—positioned in a bullish zone but not yet in overbought territory.

From the positioning structure, as of the week ending June 23, 2026, CFTC data shows that the U.S. dollar net long position reached $34.3 billion, the highest level since January 2025. This figure reflects not only market consensus that is bullish on the dollar, but also suggests potential near-term overbought pressure.

The DXY is currently hovering near 101. Key resistance is in the 101.79 to 102.00 area, while key support is at 100.50 to 100.55. The direction of a breakout from this price range will largely depend on the outcomes of a series of upcoming macro events.

Why the Fed’s interest-rate path has become the core variable for the USD exchange rate

The June 2026 Federal Open Market Committee (FOMC) meeting is an important turning point for the dollar’s direction. The meeting kept the target range for the federal funds rate unchanged at 3.50% to 3.75%, but in the statement it removed hints of further rate cuts, instead warning about inflation risks.

More significantly, the interest-rate dot plot changed. In the June dot plot, the median forecast for the year-end 2026 rate was raised sharply from 3.4% in March to 3.8%, implying a policy path with one rate hike over the year. Of the 18 officials providing rate forecasts, 9 expected to hike at least once during 2026, including 5 who expected two hikes and 1 who expected three hikes. Only 1 official expected there to still be room for rate cuts within the year.

At the first press conference after the June meeting, Fed Chair Kevin Warsh showed an independent and hawkish stance, emphasizing that suppressing inflation expectations is the top priority. On July 14, Warsh will attend the semiannual congressional monetary policy hearing for the first time, and his testimony will become a key clue for how the market assesses the future policy path.

According to the CME “FedWatch” tool, the probability the market assigns to the Fed keeping rates unchanged through September is 24.9%, the probability of cumulative 25 basis points of rate hikes is 51.2%, and the probability of cumulative 50 basis points is 23.9%. Rate futures pricing indicates the market expects the Fed to hike about 30 basis points over the course of the year.

How U.S. inflation data affects the USD exchange rate in the short term

On July 14, the U.S. Bureau of Labor Statistics will release the June Consumer Price Index (CPI) report. The market broadly expects June headline CPI to fall 0.1% to 0.2% month over month, which would be the first time since the COVID-19 outbreak in 2020 that monthly growth is negative. The year-over-year pace is expected to slow from May’s 4.2% to about 3.8%. Core CPI is expected to rise 0.2% to 0.3% month over month and stay at 2.9% year over year for the second consecutive month.

The mechanism by which inflation data affects the USD exchange rate is relatively direct. If core inflation comes in higher than expected (for example, month over month at 0.3% or higher), it would reinforce expectations that the Fed will keep rates high and even hike further, and the DXY could gain upside momentum. If inflation data comes in below expectations, it could weaken the dollar’s performance and ease concerns in the market about further tightening.

It is worth noting that in the drivers of this inflation rebound, energy prices account for the vast majority. Compared with February before the conflict, PCE year over year was lifted by 1.2 percentage points, and more than 80% of that came from energy. This means the inflation trajectory is tightly coupled with geopolitical developments rather than being purely demand-driven.

How the Middle East geopolitical conflict reshapes the dollar’s safe-haven premium

The continued escalation of the Iran-U.S. conflict is a variable that cannot be ignored in the current impact on the USD exchange rate. Over the weekend, the Iran and U.S. sides exchanged large-scale missile and drone attacks. Iran targeted U.S. facilities in multiple Gulf countries and again announced the closure of the Strait of Hormuz. U.S. President Donald Trump announced that the U.S. would reimpose a naval blockade on Iran and claimed the U.S. would ensure that the Strait of Hormuz remains open “whether or not Iran” is involved.

As a result, oil prices jumped by more than 9% in a single day. Brent crude closed at $83.30 per barrel, a one-month high. Rising energy prices affect the dollar through two channels: first, they intensify inflation concerns, strengthening expectations that the Fed will tighten; second, they directly increase demand for the dollar as a safe-haven asset.

Based on historical experience, the impact of Middle East geopolitical risk on the dollar is typically pulse-like. During the conflict escalation phase, the dollar tends to strengthen on safe-haven demand; when tensions ease, some of the gains may be given back. The market’s current pricing of the Iran-U.S. conflict is not yet fully adequate. If the conflict further expands, the DXY may test the 102 level; if there are signals of a ceasefire or easing tensions, the dollar’s geopolitical risk premium could quickly dissipate.

Can the weakness of major non-USD currencies continue to support dollar strength

The strength or weakness of the USD exchange rate is never an isolated phenomenon—it is always the result of comparison against a basket of currencies. The current broad weakness in non-USD currencies provides structural support for the dollar.

In Japan’s case, the USD/JPY traded around 162.40 on July 14, near the 40-year low of 162.84. Goldman Sachs raised its one-year forecast for USD/JPY from 155 to 165, making it one of the most bearish institutions on Japan’s outlook in a Bloomberg survey. HSBC also raised its forecast for USD/JPY at the end of 2026 from 155 to 162. The root cause of Japan’s ongoing weakness lies in the continued widening of the U.S.-Japan interest-rate differential, deterioration in Japan’s trade conditions, and the relatively dovish stance of the Bank of Japan as it gradually hikes rates.

For the euro, EUR/USD traded around 1.1383 on July 14. UBS cut its forecast for EUR/USD at the end of 2026 from 1.14 to 1.12. Bank of America also lowered its euro forecast. Weak economic growth in the euro area combined with elevated energy prices leaves the euro without fundamental support for sustained strength.

GBP/USD traded around 1.3347. UBS maintains a relatively constructive view on the pound, believing stable fiscal prospects and capital inflows will provide support. AUD/USD fell to 0.6918, and UBS lowered its year-end target for the Australian dollar from 0.74 to 0.68.

Overall weakness in non-USD currencies means that even if the dollar itself lacks strong upside momentum, the exchange rate pricing could still tilt toward a passive strengthening of the dollar.

How major institutions judge the USD exchange-rate trend in 2026’s second half

Current mainstream forecasts for the dollar’s outlook show significant divergence, which in itself reflects the high level of uncertainty in the market.

The bullish camp is represented by UBS. UBS believes a strong U.S. dollar regime will dominate the foreign-exchange market in the second half of 2026. The DXY has already broken to a new high for 2026 and could test the 102 level last seen since May 2025. Although UBS says positioning by dollar longs has increased, it believes the current level is still far below the extreme levels of 2024, leaving room for further upside in the dollar.

The bearish camp is represented by Morgan Stanley. Morgan Stanley expects the DXY to depreciate by 9% to 91 by mid-2026, EUR/USD to rise to 1.25, and USD/JPY to strengthen to 130. TD Securities forecasts that the dollar against major currencies will fall by 3% to 6%.

Middle-ground views account for most. Standard Chartered expects the dollar to be slightly strong in the near term, with the DXY to trade in a range around 100 points over the next three months, followed by a gradual decline over the medium to long term. Fubon Financial Holding’s chief economist, Ruo Wei, forecasts the DXY will range in the high-end zone of 97 to 102 in the second half of the year. North Fubon Bank forecasts that the DXY will remain relatively strong to trade in a range between 99 and 102. Minsheng Securities’ research believes the DXY is likely to trade on the weak side.

Summary

The USD exchange-rate trend in the second half of 2026 is at a crossroad shaped by multiple variables. The DXY is currently oscillating around 101. It faces resistance near the 102 level upward, while key support lies in the 100.50 to 100 area downward.

The three core variables driving the dollar’s direction—Fed interest-rate path, the trajectory of U.S. inflation data, and Middle East geopolitical risk—are all in a state of high uncertainty. The Fed’s dot plot suggests a rate hike may occur once in the year, but the actual policy depends on data; the June CPI data will be released on July 14, and the outcome will directly influence the policy decision at the September FOMC; the path of the Iran-U.S. conflict is even more of an unpredictable geopolitical variable.

Institutional views range widely from bullish (UBS, HSBC) to bearish (Morgan Stanley, TD), reflecting the difficulty of current market pricing. For market participants, rather than betting on a single direction, it may be better to build a scenario-analysis framework and adjust judgments dynamically based on changes in inflation data, Fed statements, and geopolitical developments.

FAQ

Q: What are the possible main trading ranges for the DXY in the second half of 2026?

Mainstream institutions concentrate their forecast ranges between 99 and 102. UBS believes the dollar may test the 102 level, while Morgan Stanley expects the dollar to weaken significantly to 91. The actual trading range will depend on the combined evolution of inflation data, Fed policy, and the geopolitical situation.

Q: Will the Fed still hike rates in 2026?

Based on the June FOMC dot plot, among 18 officials, 9 expect at least one rate hike during the year. Market pricing shows expectations of about 30 basis points of hikes over the year. But whether to hike and by how much ultimately depends on the actual performance of subsequent inflation and employment data.

Q: How does JPY depreciation affect the USD exchange rate?

The JPY is the currency with the second-highest weight in the dollar index basket. USD/JPY is hovering around 162 and is near the 40-year low. The JPY’s continued weakness directly lifts the DXY— even if the dollar against other currencies stays stable, the weakness of the JPY may keep the dollar index elevated.

Q: How does the Middle East situation affect the USD exchange rate?

Middle East conflicts affect the dollar through two channels: first, they push up oil prices, intensifying inflation concerns and reinforcing expectations of tighter Fed policy; second, they directly increase demand for the dollar as a safe-haven asset. Conflict escalation typically benefits the dollar, while a easing of tensions could cause the dollar to give back part of its gains.

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