"Although the index jumped 2% at the start of the week amid geopolitical tensions, the rally appeared more like a swift emotional reaction than a structural shift in trend. In my opinion, the index's failure to hold above 100-despite geopolitical tensions in the Middle East-suggests that markets have begun to reprice risks more calmly, and that precautionary demand for the dollar is no longer as strong as before."
"I believe this behaviour reflects a hesitant market; investors do not see sufficient justification to build long-term positions in the dollar unless a new wave of inflation is confirmed or further monetary tightening from the Federal Reserve materialises. The upward break of the moving average was a positive signal, but the swift return toward it indicates that the uptrend remains fragile, and any negative data surprise could push the index back toward the 97-96 range in the coming weeks."
"In theory, this development supports the dollar through two channels: safe-haven inflows and inflation concerns that could force the Federal Reserve to delay rate cuts. However, I believe markets have become more selective; past experiences have shown that short-term geopolitical shocks do not always translate into sustained trends in the U.S"
The US Dollar Index declined to 98.90 after briefly touching 99.68, reflecting weakening momentum from recent safe-haven demand. Although the index surged 2% early in the week due to geopolitical tensions, this rally appeared to be an emotional reaction rather than a structural trend shift. The index's inability to sustain levels above 100 despite Middle East tensions suggests markets are reassessing risks more rationally and precautionary dollar demand has diminished. The index's movement toward its 200-day exponential moving average carries technical significance, as it broke above this level for the first time since late November but quickly retreated. Investors appear hesitant to establish long-term dollar positions without confirmation of new inflation or additional Federal Reserve monetary tightening. While geopolitical factors like Iran's Strait of Hormuz closure and rising oil prices theoretically support the dollar through safe-haven flows and inflation concerns, markets have become more selective, recognizing that short-term geopolitical shocks rarely translate into sustained currency trends.
Read at London Business News | Londonlovesbusiness.com
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