DXY bounces from fresh lows as ceasefire cracks widen on all sides

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Iranian Parliamentary Speaker Ghalibaf accused the US and Israel of ceasefire violations just hours after the truce was announced.
The FOMC's March Minutes showed many policymakers flagged the risk that rate hikes could be needed if inflation stays elevated.
Thursday's core PCE and Friday's March CPI round out a data-heavy back half of the week.

The US Dollar Index (DXY) continued to grind lower during the front half of the US trading session on Wednesday, falling roughly 1% from the prior session's close near 100.00 to tag a low around 98.50 as the US-Iran ceasefire announcement triggered a broad wave of risk-on selling in the US Dollar. The index has since recovered back above 99.00, trimming about half of the session's losses as ceasefire complications mounted through the back end of the New York trading window.

The initial Dollar sell-off followed President Trump's announcement of a two-week "double-sided ceasefire" with Iran, brokered by Pakistan and contingent on the reopening of the Strait of Hormuz. Markets reacted swiftly, with Crude Oil plunging over 15% and global equities surging on hopes the five-week conflict was nearing a resolution. However, optimism is fading quickly.

Iranian Parliamentary Speaker Mohammad Bagher Ghalibaf posted on X, accusing the US and Israel of violating the terms of the tentative truce, while Israeli Prime Minister Netanyahu declared the ceasefire "does not include Lebanon" and launched a fresh wave of strikes on Hezbollah targets in Beirut and southern Lebanon. Iran's Fars news agency reported that oil tanker traffic through the Strait of Hormuz was halted again following the Israeli strikes, and Tehran warned it would withdraw from the agreement entirely if fighting in Lebanon continued. The rapid unraveling pushed the US Dollar off its lows as safe-haven demand began to creep back in.

The Federal Open Market Committee's (FOMC) March 17 to 18 Meeting Minutes, released earlier today, struck a notably cautious tone. The Committee held the federal funds rate at 3.50% to 3.75% by an 11 to 1 vote, with Governor Miran dissenting in favor of a 25 basis point cut. The vast majority of participants judged that upside risks to inflation and downside risks to employment were both elevated, and the majority noted these risks had increased with developments in the Middle East. Critically, many policymakers pointed to the risk that inflation could stay elevated for longer amid persistently high oil prices, noting this "could call for rate increases" to bring inflation back to the 2% target.

Some participants argued there was a strong case for a two-sided description of the Committee's future rate decisions, explicitly flagging the possibility of hikes if inflation failed to cool. Options pricing discussed in the Minutes showed the probability of rate hikes through early next year had risen to about 30%. On the labor market side, the vast majority saw downside risks to employment as skewed lower, with many warning that low rates of net job creation left the labor market vulnerable to adverse shocks, particularly from a protracted Middle East conflict. Most participants reiterated it was too early to know how the war would ultimately affect the US economy, but the overall tone leaned hawkish relative to the January Minutes.

DXY 15-minute chart

Technical Analysis

In the fifteen-minute chart, Dollar Index Spot trades at 99.12, holding a bearish near-term bias as it remains capped by the 200-period Exponential Moving Average (EMA) at 99.33. The index is attempting to stabilize after its earlier decline, but the inability to reclaim this overhead dynamic barrier suggests rallies are still vulnerable. A high and rising Stochastic RSI around overbought territory hints that upside momentum has stretched, increasing the risk of a pause or minor pullback while price trades under the 200-period EMA.

On the topside, immediate resistance is defined by the 200-period EMA at 99.33, and a sustained break above this level would be needed to ease the current bearish pressure and open the door to a more constructive recovery phase. On the downside, with no clear intraday moving-average or structural supports visible in the provided data, short-term dips may look to recent price congestion zones for tentative demand, but the broader tone stays pressured while the index holds beneath the 99.33 resistance cap.

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

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US Dollar?

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.

What is Quantitative Tightening and how does it influence the 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.