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By: Rania Gule, Senior Market Analyst at XS.com – MENA
The US Dollar Index (DXY) is retreating once again below the 100-point mark, stabilizing near 98.90 after touching 99.68, in a move that, in my view, reflects the beginning of fading momentum that had been fueled by safe-haven flows in recent days. 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.
The move toward the 200-day exponential moving average carries important technical significance. At the beginning of the week, the index managed to break above this average for the first time since late November, after rebounding from its late-January low near 95.56. However, the momentum quickly faded. I believe this behavior 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 materializes. 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.
The geopolitical factor remains strongly present, particularly with Iran’s announcement of the closure of the Strait of Hormuz and oil prices climbing to their highest levels since mid-2025. 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. currency unless accompanied by a clear improvement in economic fundamentals. Therefore, I think the impact of higher oil prices on the dollar will remain limited unless it quickly feeds into actual inflation data.
The decline in the Services Prices PMI to 63 from 66.6 in February is also noteworthy. Although the reading remains relatively elevated, the drop reflects a slowdown in the pace of price pressures. In my view, this development sends a dual message: the economy is not collapsing, but it is losing some momentum, and inflation in the services sector—previously a key concern for the Fed—may be starting to moderate. If this trend is confirmed in the coming months, one of the main justifications for monetary tightening would diminish, potentially adding further pressure on the dollar.
Attention now turns to the Nonfarm Payrolls report, with expectations pointing to a sharp slowdown in hiring to just 59,000 jobs compared to 130,000 in January. In my assessment, if the figure comes in near or below that level, it will likely be seen as a clear signal that labor market momentum is fading, prompting markets to strengthen bets on rate cuts in the second half of the year. This scenario, in my view, would weigh on the Dollar Index and push it to test lower support levels. Conversely, if the data surprises to the upside, we could see a temporary rebound above 100, though it would still depend on confirmation from additional data.
Retail sales and the Federal Reserve’s semiannual monetary policy report will add another layer of complexity. From my perspective, the Fed finds itself in a delicate position: rising oil complicates the inflation outlook, while a potential slowdown in jobs and consumer spending calls for caution. If the report’s tone leans more toward concern over slowing growth than inflation risks, markets may interpret this as confirmation that the tightening cycle has effectively ended, thereby reinforcing downward pressure on the dollar.
In conclusion, I believe the Dollar Index stands at a genuine crossroads. The recent rally was driven more by temporary factors than by a fundamental improvement in economic conditions. With safe-haven demand easing, some economic indicators slowing, and the risk of weaker jobs data rising, I lean toward a short-term corrective downside scenario. The 100 level is likely to remain a difficult psychological and technical barrier for now, and any move toward it may present an opportunity to reassess positioning—unless upcoming data deliver strong surprises that completely reshape expectations.
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