US Dollar Index Price Forecast: Continues to face pressure near 99.50
- The US Dollar Index ticks up to near 99.25 despite increased hopes of a US-Iran deal.
- Iran still stresses holding uranium enrichment and control over the Strait of Hormuz.
- The Fed is unlikely to cut interest rates this year.
The US Dollar (USD) trades marginally higher during the early European trading session on Friday, even as market participants remain confident that the United States (US) and Iran will reach a deal soon.
As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, edges up to near 99.25.
On Thursday, the Iranian Labour News Agency (ILNA) stated that a final draft between the US and Iran has been reached with Pakistan's mediation, and a deal can be announced within the next few hours, Al Arabiya reported. The ILNA also stated that an immediate ceasefire on all fronts, guaranteed freedom of navigation in the Gulf and the Strait of Hormuz, and the launch of negotiations on outstanding issues within a week are key provisions of the agreement.
Meanwhile, senior Iranian officials have said that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz remain among the sticking points, which US President Donald Trump has repeatedly called non-negotiable.
On the monetary policy front, traders remain confident that the Federal Reserve (Fed) will either hold interest rates steady at their current levels and deliver at least one interest rate hike this year.
US Dollar Index technical analysis
The Dollar Index Spot trades marginally higher at around 99.25 at the press time. The index holds above the 20-period Exponential Moving Average (EMA) at 98.79, keeping the near-term bias constructive as price extends its recovery from last month’s lows.
The Relative Strength Index (RSI) struggles to break above 60.00, suggesting the upside momentum remains muted.
On the downside, initial support is now seen at the 20-day EMA around 98.79, where a pullback could attract dip-buying interest if the broader bullish tone persists. The Dollar Index spot could slide to 98.00 if it fails to hold above the 20-day EMA. Looking down, the spot could extend the advance towards 100.00 if it manages to break above the May 21 high at 99.52.
(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.