United States Dollar Index falls as Middle East calm cools inflation fears
- US Central Command mission completion pressures WTI, trimming the energy-risk premium.
- Jobless claims fall, but Dollar fails to regain traction.
- CPI, PPI and housing data drive next Fed repricing.
The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is down 0.14% to 100.93 on Thursday as tensions in the Middle East ease, driving Oil prices lower and trimming Federal Reserve (Fed) hawkish bets spurred by the energy shock.
DXY slips as Hormuz calm drags Oil, Fed bets lower
Geopolitics grabbed the attention after the US and Iran exchanged attacks during the last two days. The US President Donald Trump is growing impatient about the outcome of the negotiations with Iran, adding that the agreement was “over.”
The US military attacked 90 military positions near the Strait of Hormuz on Wednesday, intending to weaken Iran's ability to attack vessels transiting through the strait. Meanwhile, Iran targeted US bases in Bahrain, Kuwait and Qatar.
The US Central Command (CENTCOM) announced the completion of the task, which weighed on Oil prices. Western Texas Intermediate (WT), the US crude Oil benchmark, recoils 3.50% to $72.07.
A light economic docket in the US showed that Initial Jobless Claims for the week ending July 4 were below estimates of 218K, coming at 215K, down from the prior reading of 217K
On Wednesday, the latest FOMC meeting minutes showed that most officials favored further tightening by the Federal Reserve, though those pushing for a rate hike opted to hold rates and wait for more data. Money markets are pricing in an 87% chance of a rate hike in 2026, according to Prime Terminal data.
Earlier, New York Fed President John Williams acknowledged that inflation is “far too high,” and that monetary policy needs to be focused on how energy prices affect inflation. Williams reiterated the central bank’s commitment to drive inflation back to 2% and that policy “must remain” data-dependent.
Traders' eyes turn to next week’s economic data, with the focus on the release of the Consumer Price Index (CPI), the Producer Price Index (PPI), jobless claims and housing data.
US Dollar Index Price Forecast: Technical outlook
In the daily chart, Dollar Index Spot trades at 100.87, retaining a constructive bullish bias as price holds above the clustered simple moving averages (SMA) around 99.75 and the reclaimed uptrend support line, whose break price sits near 99.03. The broader ascending trend line, originating around 95.56, continues to underpin the structure, while the 14-period Relative Strength Index near 55 suggests positive but not stretched momentum after the recent recovery above the 100 handle.
On the downside, initial support is seen at the recent pivot zone around 100.87, with stronger underlying demand emerging at the SMA cluster near 99.75 and then the prior break region at 99.03, ahead of the deeper trendline base near 95.56. With no immediate overhead technical barriers in the current dataset, the index would likely remain biased higher as long as it sustains above these stacked supports and momentum stays anchored in the mid-50s on the RSI.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
