United States Dollar Index slips as US-Iran hopes cap safe-haven bid

DXY declines as easing Middle East tensions lower safe-haven demand and reduce December Fed rate-hike probabilities.
US-Iran peace talks steady crude oil prices, helping dampen immediate inflation concerns.
Robust US GDP and tight labor market data limit Dollar losses by demonstrating economic resilience.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground for the third successive day and trading near 101.70 during Asian hours on Friday.

The Greenback faces pressure on easing safe-haven demand amid hopes for US-led diplomatic peace talks. Easing Middle East tensions have helped offset oil supply and inflationary concerns, dampening expectations for a Federal Reserve (Fed) rate hike at its December meeting. CME FedWatch Tool suggests that traders are now pricing in a nearly 75% chance of a 25-basis-point rate increase, down from 84.2% a day prior.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Crude oil prices held steady following a Wall Street Journal report disclosing that US Vice President JD Vance reached out on Wednesday to Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, in an effort to restart peace talks. US President Donald Trump confirmed he approved Vance's diplomatic outreach, adding that Iran needs assistance with medical supplies and other essential resources.

However, recent US economic data highlights continued resilience and increased Fed rate hike bets. Preliminary Gross Domestic Product printed at 3.4% YoY, beating expectations of 3.2% and rising from Q2's 2.2% reading, driven by strong consumer spending at 3.8% YoY.

Furthermore, the Fed’s preferred inflation metric, the Core PCE Price Index, rose 3.1% YoY in line with expectations, while initial jobless claims dipped slightly to 194K, reinforcing signs of a heating economy and a tight labor market.

Technical Analysis:

In the daily chart, Dollar Index Spot trades at 101.70. Price holds above the 50-day Exponential Moving Average (EMA) but remains capped by the nine-day EMA, keeping the near-term tone neutral after the recent pullback from the highs. The 14-day Relative Strength Index (RSI) has eased to 51.47, hinting at consolidative momentum rather than a clear directional push, while the FXS Fed Sentiment Index at 141.89 suggests elevated policy-related uncertainty that could limit sustained trending moves.

On the topside, immediate resistance is located at the 9-day EMA at 101.93, and a decisive break above this barrier would open the way for a retest of recent peaks. On the downside, initial support is seen at the 50-day EMA at 101.21, with a daily close below this level likely to shift the bias back toward a more bearish configuration as the index would start sliding beneath its medium-term trend base.

Chart Analysis Dollar Index Spot — US Dollar Index: Daily Chart

Treasury curve steepening seen as supportive for broader USD tone

Strategists at Scotiabank highlight that recent “price action in the Treasury curve was notable,” with Chair Warsh’s remarks ultimately delivering “a meaningful steepening in 2s-10s – a powerful signal for growth.” They describe the move as “a welcome move away from inversion,” stressing that it is one “that carries clear implications for the USD more broadly,” as investors reassess the growth outlook and the currency’s underlying support.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US Dollar?

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.

What is Quantitative Tightening and how does it influence the 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.