• The US Dollar Index pushes above 100, approaching its highest level since November.
• Rising Oil prices and tensions around the Strait of Hormuz fuel inflation concerns.
• Markets reassess Federal Reserve policy expectations ahead of key US data releases.

The US Dollar Index (DXY) extends its advance on Friday, trading around 100.10 at the time of writing and gaining 0.35% for the day. The US Dollar (USD) remains supported as investors reassess the outlook for United States (US) monetary policy, while higher US Treasury yields continue to reinforce demand for the Greenback.

The rebound in the USD comes as markets increasingly focus on the inflationary implications of the recent surge in Oil prices. Escalating geopolitical tensions in the Middle East, particularly involving Iran, Israel and the United States, have raised fears of supply disruptions in global energy markets. Iran’s new Supreme Leader, Mojtaba Khamenei, indicated that the closure of the Strait of Hormuz could remain part of the country’s strategy to pressure its adversaries, further amplifying uncertainty surrounding Oil supply.

Despite efforts by the International Energy Agency (IEA) to stabilize markets through the release of 400 million barrels from strategic reserves, Crude Oil prices remain highly volatile. Brent Crude trades near $100 per barrel, heightening concerns that persistent energy costs could feed into broader inflation pressures. The surge in energy prices is also prompting markets to significantly reduce expectations for interest rate cuts by the Federal Reserve (Fed).

Analysts at MUFG estimate that every $10 increase in Oil prices could add roughly 0.2 percentage points to US inflation. "At around USD100/bbl Oil, headline inflation could rise by close to 0.8ppt, while in a USD150/bbl scenario, inflation risks pushing decisively above 4%. Reflecting these risks, markets have sharply pared back expectations for Fed rate cuts this year, with easing expectations fading further as the US Iran conflict persists. At the same time, a potential delay in Fed easing in response to the Oil shock is likely to provide near term support for the US Dollar," notes the analysts.

At the same time, analysts at National Bank of Canada suggest that although the US economy is expected to maintain solid growth, the current energy shock increases the risk that the Fed delays the start of its easing cycle. The bank still forecasts two rate cuts this year but acknowledges that policymakers may remain on hold if inflation pressures persist.

Attention now turns to a busy US economic calendar on Friday, including the Personal Consumption Expenditures (PCE) Price Index, Durable Goods Orders, Gross Domestic Product (GDP) data and the University of Michigan Consumer Sentiment Index. These releases could provide further clues on the trajectory of Fed policy and influence short-term movements in the US Dollar.

US Dollar Index Technical Analysis

In the daily chart, US Dollar Index trades at 100.07. The near-term bias is bullish as price extends above the rising support trend line from 95.57 and pushes further away from the 100-day Simple Moving Average (SMA) near 98.60, which underpins the advance. The index holds well above this longer-term average, suggesting buyers control the broader tone, while the Relative Strength Index (RSI) at 72 enters overbought territory and signals stretched upside momentum that could slow the ascent rather than immediately reverse it.

Immediate resistance emerges at 100.39, defined by the horizontal barrier that caps the latest rally and marks the next hurdle for bulls. A clear daily close above this level would open the way to further gains, with the rising trend line likely to stay intact as long as the index holds above initial support at 99.30, followed by the 100-day SMA support band around 98.60. A break beneath the moving average cluster would weaken the bullish case and expose deeper retracement towards the mid-98.00s.

(The technical analysis of this story was written with the help of an AI tool.)