DXY: Fed transition and geopolitics steer support – DBS

DBS Group Research’s Philip Wee argues that the USD Index (DXY) is at an inflection point, consolidating in a 98–99 range after retracing its post-Operation Epic Fury rally. He links DXY resilience to elevated Brent prices near USD 110 and unresolved Iran tensions, while Fed leadership changes and prospective European Central Bank (ECB) and Bank of England (BoE) hikes threaten the US policy rate advantage.

Dollar index holds as risks converge

"The USD Index (DXY) has reached an inflection point, keeping mostly to a 98-99 range since mid-April, after retracing its post-Operation Epic Fury rally to 100.64 in late March."

"While the DXY signalled that the initial shock of the Middle Eastern escalation has been largely absorbed, USD bears hesitate to initiate a sustained sell-off due to the lack of a definitive diplomatic breakthrough in the Iran conflict, which continues to keep Brent crude prices elevated near USD 110 per barrel."

"Until the market sees a credible "off-ramp" that restores energy stability, the USD’s floor is likely to hold, even as momentum indicators begin to stall."

"If a diplomatic pivot is achieved, we expect a sharp reduction in the oil risk premium and a subsequent break in DXY support, with the narrative of capital rotating back into high-beta G10 currencies and emerging market assets."

"The internal dynamics of the Fed are further complicating the DXY’s trajectory."

"Although the Fed is currently in a holding pattern, interest rate futures have begun pricing in a hawkish tilt for late 2026 following the less dovish pivot at the March 25 FOMC meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)