US Dollar Index rallies toward 100.00 as Iran conflict drives safe-haven flows
- The US Dollar Index surged to a five-week high as the Strait of Hormuz closure stokes inflation fears.
- The Fed is holding rates at 3.50% to 3.75%, with the ISM prices paid sub-index surging to a three-and-a-half-year high in February, narrowing the window for near-term rate cuts.
- Iran's Revolutionary Guard declared the Strait of Hormuz closed after US and Israeli strikes, halting tanker traffic and sending oil prices to their highest since mid-2025.
The DXY jumped about 0.55% on Tuesday, rallying to around 99.09 and extending Monday's sharp move higher. The index has broken decisively out of the 97.00 to 98.50 consolidation range that held through most of February, with Monday's strong bullish candle marking the biggest single-session gain in weeks.
The escalating conflict in the Middle East is the primary catalyst behind the US Dollar's safe-haven bid. US and Israeli strikes on Iran over the weekend prompted Iran's Revolutionary Guard to declare the Strait of Hormuz closed, effectively halting tanker traffic through a chokepoint that carries roughly 20% of global oil consumption. Brent crude surged to around $79 per barrel, stoking fears of a fresh inflation impulse that could delay the Federal Reserve's (Fed) easing timeline.
On the domestic side, the Fed is holding rates at 3.50% to 3.75%, and the January Federal Open Market Committee (FOMC) minutes showed several officials discussed the possibility of raising rates if inflation stays above target. Monday's Institute for Supply Management (ISM) manufacturing report came in stronger than expected at 52.4, while the prices paid sub-index jumped to a three-and-a-half-year high. Markets are still pricing in two 25 basis point cuts this year, but rising energy costs and sticky producer prices are complicating that outlook.
DXY daily chart
Technical Analysis
In the daily chart, Dollar Index Spot trades at 99.10. The near-term bias is mildly bullish as price has reclaimed the 50-day exponential moving average near 97.90 and is advancing away from that area, while the 200-day average above 99.10 still caps the broader trend. Stochastic holds in overbought territory after a strong upswing from sub-20 readings, signaling firm upside momentum but also raising the risk of a pause or brief consolidation as the index tests higher ground.
Initial resistance emerges around the 200-day EMA at 99.15, with a sustained break exposing the 100.00 region as the next upside objective. On the downside, immediate support stands at the 50-day EMA near 97.90, followed by the recent reaction low at 97.00 if a pullback develops. As long as the index holds above the 97.90 area, the path of least resistance favors further tests of the 99.15 barrier.
In the weekly chart, Dollar Index Spot trades at 99.11. The near-term bias is neutral with a slight downside lean as price holds below the gently descending 200-week exponential moving average near 100.45, keeping the broader trend under pressure. Recent weekly closes show difficulty extending beyond the 100.00 area, suggesting upside attempts are being capped within a prevailing medium-term range. The stochastic has turned higher from oversold territory but remains mid-range, indicating only moderate recovery momentum and lacking the strength to confirm a sustained bullish reversal at this stage.
Initial resistance emerges at the psychological 100.00 region, with the 200-week EMA at 100.45 reinforcing this ceiling; a weekly close above this zone would be needed to shift the bias decisively higher toward the 101.00 area. On the downside, immediate support aligns near 98.00, guarding the late pullback lows, with a break exposing the next downside level around 97.00. As long as the index trades between 98.00 and 100.45, range conditions are likely to dominate, with momentum signals watched for confirmation of any breakout.
(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.
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