US Dollar Index (DXY) sticks to modest gains above 99.00, or nearly two-week high
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The USD kicks off the new week on a positive note in reaction to rising Middle East tensions.
The Fed’s hawkish stance further lends support to the buck and contributes to the move up.
Trade-related uncertainties cap the USD as traders await flash global PMIs for a fresh impetus.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, opens with a modest bullish gap and hits a nearly two-week high during the Asian session on Monday. The intraday uptick, however, lacks follow-through, with the index currently trading just above the 99.00 round figure, up over 0.25% for the day.
A further escalation of geopolitical tensions in the Middle East tempers investors' appetite for riskier assets at the start of a new week and turns out to be a key factor that benefits the USD's status as the global reserve currency. In fact, the US joined Israel in the military action against Iran and bombed three nuclear sites on Sunday. Adding to this, US Defense Secretary Pete Hegseth warned Iran against following through with past threats of retaliation.
Iran’s Foreign Minister Abbas Araghchi called the event outrageous and added that it will have everlasting consequences. This raises the risk of a wider regional conflict and triggers a fresh wave of a risk-aversion trade, underpinning traditional safe-haven assets. Apart from this, the Federal Reserve's (Fed) hawkish signal last week, projecting only one 25-basis-point rate cut in each of 2026 and 2027, lend additional support to the USD Index.
However, the uncertainty over US President Donald Trump's erratic trade policies and concerns about a slowing economy hold back the USD bulls from placing aggressive bets amid speculations that Iran will respond to the US airstrikes. Hence, the focus will remain glued to geopolitical developments, which will drive the broader risk sentiment. Apart from this, traders will take cues from the release of the flash global PMIs for some impetus.
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