US Dollar Index claws back Monday's losses as Iran denies talks
- The US Dollar Index recovered toward 99.50 on Tuesday as safe-haven demand returns and flash PMI data points to slower growth alongside rising prices.
- Iran denied any negotiations with the US are taking place, while the Pentagon prepared to deploy 3,000 troops from the 82nd Airborne Division, reversing Monday's de-escalation trade that briefly sent the Dollar to a two-week low.
- March flash PMI showed manufacturing expanding at 52.4 but services slipping to 51.1; S&P Global flagged stagflation risks with annualized GDP growth tracking just 1.0% and inflation potentially rebounding toward 4%.
The US Dollar Index rose about 0.3% on Tuesday, recovering to around 99.40 after Monday's sharp sell-off to a near two-week low. The session produced a steady grind higher from an early dip close to 99.10, with price pushing to about 99.60 in afternoon trade before pulling back slightly into the close. The reversal mirrored the broader risk recalibration across markets as Iran's flat denial of Trump's diplomatic claims brought safe-haven flows back into the Greenback.
The Cleveland Fed's inflation nowcast is tracking March Consumer Price Index (CPI) at 3.02% and Personal Consumption Expenditures (PCE) at 3.14%, both sharp jumps from February, driven almost entirely by the oil shock. CME FedWatch pricing now shows essentially zero probability of a cut by year-end, with some traders beginning to price in a possible hike if core inflation picks up. Fed Chair Jerome Powell, whose term expires in May, described the situation as "an energy shock of some size and duration" while stressing it was "too soon to know" the full impact.
Tuesday's flash Purchasing Managers' Index (PMI) data reinforced the stagflation narrative: Manufacturing expanded at 52.4, beating the 51.5 consensus, but Services slipped to 51.1 and the composite reading fell to an 11-month low of 51.4. Input costs rose at their fastest pace in ten months while selling prices hit their highest since August 2022, and employment declined for the first time in over a year. S&P Global's chief economist noted the data points to annualized GDP growth of just 1.0% alongside inflation potentially rebounding toward 4%, a combination that leaves the Fed caught between its dual mandates.
DXY 5-minute chart
Technical Analysis
In the 5-minute chart, Dollar Index Spot trades at 99.41. Near-term bias is neutral with a slight bearish tilt as prices slip back toward the 200-period exponential moving average at 99.38 after failing to hold the early-session push above 99.50. The flattening EMA and the sequence of lower intrabar highs point to fading upside momentum, while Stochastic RSI recovering from oversold territory below 20 toward the mid-40s suggests short-covering rather than fresh buying interest at this stage.
Initial resistance stands at 99.50, where recent upticks stalled, followed by a stronger cap near 99.60 if buyers regain control. On the downside, the EMA around 99.38 acts as immediate intraday support, and a clear break below this area would expose the next bearish objective near 99.30. A sustained move back above 99.50 would ease downside pressure, while a close below 99.38 would reinforce the short-term corrective drift.
In the daily chart, Dollar Index Spot trades at 99.42. The near-term bias is mildly bullish as price holds above both the 50-day and 200-day exponential moving averages, which continue to underpin a medium-term uptrend. The recent pullback from the 100.50 area has so far been contained near the rising 50-day EMA around 98.60, showing buyers defending this dynamic support. Stochastic RSI is retreating from overbought readings toward mid-range, indicating fading upside momentum but not yet signaling a complete reversal of trend.
Initial support is located at the 50-day EMA near 98.60, followed by the 200-day EMA around 99.00, where a break would open the way toward the late-January lows near 97.80. On the topside, immediate resistance emerges at 100.00, ahead of the recent peak at 100.50, which caps the current bullish structure. A daily close above 100.50 would confirm a continuation of the broader advance, while a sustained move below 98.60 would neutralize the upside bias and expose deeper retracement.
(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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