US Dollar Index reverses sharply on Iran de-escalation hopes
- The US Dollar Index spiked to session highs before plunging after Trump announced a postponement of strikes on Iranian energy infrastructure.
- The Fed held rates at 3.50% to 3.75% last week, with Chair Powell noting inflation progress has been slower than hoped; the updated dot plot still projects one cut in 2026.
- Trump announced a five-day postponement of planned strikes on Iranian power plants, citing productive talks with Tehran; Iran denied any negotiations, and the Strait of Hormuz remains closed.
The US Dollar Index (DXY) swung wildly on Monday, briefly pushing above the 100.00 level to a session high near 100.15 on early safe-haven demand before reversing sharply to settle around 99.12, down roughly 0.5% on the day. The spike and reversal produced one of the widest intraday ranges in weeks, with the DXY covering more than 125 points from peak to trough. The rejection at 100.00 was swift and decisive, with prices giving back the entire rally in a matter of hours.
The reversal was triggered by a surprise announcement from US President Donald Trump that the US had held "productive conversations" with Iran and that all planned strikes on Iranian power plants and energy infrastructure would be postponed for five days. Crude oil prices tumbled on the news, with West Texas Intermediate (WTI) falling more than 9% below $90 per barrel and Brent sliding over 13% at the lows. The sharp drop in energy prices undercut the Dollar's safe-haven bid as traders began pricing in the possibility of a ceasefire in the four-week-old conflict. Tehran denied any talks were taking place, however, and the Strait of Hormuz remains closed to most tanker traffic, leaving the outlook for a lasting resolution uncertain.
The Federal Reserve (Fed) held rates at 3.50% to 3.75% at its March 18 meeting, with Chair Powell noting that inflation progress has not been as fast as hoped. Updated projections see the Personal Consumption Expenditures (PCE) price index at 2.7% for the year, with only one rate cut still penciled in for 2026. A sustained pullback in oil prices would ease some of the energy-driven inflation pressure that has kept the Fed on hold, but the fragility of the diplomatic window means the Dollar's direction remains hostage to the next headline out of the Middle East.
DXY 5-minute chart
Technical Analysis
In the 5-minute chart, Dollar Index Spot trades at 99.12. Near-term bias is mildly bearish as price holds well below the 200-period exponential moving average near 99.33, confirming an intraday downtrend after the failure to recapture levels closer to the day’s open at 99.56. The Stochastic RSI has recovered from deeply oversold readings but remains subdued in the lower half of its range, indicating fading downside momentum yet no clear shift toward sustained buying pressure.
Initial resistance emerges at 99.20, where recent intraday swings stalled ahead of the declining 200-period EMA at 99.33, which remains the key barrier for any broader recovery. A break above this zone would expose 99.45 as the next upside level. On the downside, immediate support is seen at the 99.10 area, with a clear move beneath it opening the way toward 98.90, where sellers would likely reassess the strength of the bearish intraday bias.
(The technical analysis of this story was written with the help of an AI tool.)
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
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
