Risk aversion eases, the US dollar index falls near the 99 level, awaiting guidance from the Federal Reserve minutes.

Huitong Finance App News—— The U.S. Dollar Index has been under continued downward pressure during the Asian session on Wednesday, currently trading near 99.05, extending the pullback seen in the previous trading day. The main factors weighing on the dollar stem from a temporary easing of the situation in the Middle East. U.S. President Trump announced a two-week pause in military action against Iran, a decision that significantly reduced market demand for safe-haven assets.

An FX strategy analyst said, “As the conflict cools in the short term, market risk appetite rebounds, and the dollar’s appeal as a safe-haven asset clearly declines.”

From the development of the event, this pause action comes with conditions: Iran must reopen the Strait of Hormuz for passage. Iran stated that, with coordination among armed forces, it will allow safe passage of this critical shipping route within the next two weeks. This statement, to a certain extent, alleviates market concerns about disruptions to energy supply, thereby weakening the logic supporting the dollar’s safe-haven demand.

The Strait of Hormuz handles about 20% of global shipping energy transport, and its status directly affects global market stability expectations. As anticipation of the route’s reopening heats up, market risk sentiment improves noticeably; capital flows from safe-haven assets into risk assets, further suppressing the dollar’s performance.

Meanwhile, market focus is gradually shifting to the Federal Reserve meeting minutes that are about to be released. The minutes will reveal the decision-makers’ assessment of the recent energy shock and the inflation path, providing clues for the future direction of policy. Especially against the backdrop of increased volatility in energy prices, markets hope to gain more information in the minutes about the persistence of inflation and the interest-rate path.

Some institutions believe, “If the minutes release a more hawkish signal, the dollar may receive interim support, but the overall trend will still depend on changes in risk sentiment.”

In terms of interest-rate expectations, the market still has disagreements about the policy path. According to a market survey, the probability of rate cuts within the year is currently about 40%. This expectation limits, to some extent, the dollar’s upside room. If subsequent data further confirm economic slowdown or a decline in inflation, expectations for rate cuts may continue to rise, creating sustained pressure on the dollar.

From the perspective of market sentiment, the dollar’s current performance is clearly influenced by the dual effects of “a weakening safe-haven attribute” and “increasing policy uncertainty.” On the one hand, the easing of geopolitical risk reduces demand for the dollar; on the other hand, the Federal Reserve’s policy path remains unclear, keeping funds cautious.

From a technical standpoint, the daily chart shows that after the dollar index fell from its highs, it has entered a choppy and weaker-to-sideways pattern. It has already broken below the short-term equilibrium range, with the overall trend shifting from strong to weak. The 98.50 area is a key support level; if it is broken further, it may open up additional downside space. Overhead resistance is concentrated at the 100 whole-number level, which combines both a psychological threshold and technical pressure. In terms of momentum, bearish strength is gradually increasing, but a one-way trend has not yet formed. Observing the 4-hour cycle, the short-term structure shows a choppy downward pattern; if rebounds fail to break above the 100 level, it will still mainly be weak consolidation. If the level is unexpectedly reclaimed, it could trigger a technical rebound.

Overall, the dollar index is currently in a critical stage where fundamentals and sentiment are intertwined. If the geopolitical situation eases further and the Federal Reserve releases a more dovish signal, the dollar may continue its decline. Conversely, if policy turns hawkish or tensions rise again, the dollar still has room to rebound.

Editor’s Summary

The core driver of this round of dollar pullback lies in the decline in safe-haven demand brought by the easing of the Middle East situation, together with the market’s uncertainty about the Fed’s policy path, which puts short-term pressure on the dollar. Structurally, the dollar’s performance is gradually shifting from a single safe-haven-driven mode to a dual “policy + sentiment” driven model. Looking ahead, whether the dollar can stabilize and rebound will depend on two key variables: first, whether geopolitical risk continues to cool; second, whether the Federal Reserve releases clearer policy signals. Against this backdrop, the dollar in the short term may maintain a choppy range-bound pattern, while the long- to medium-term direction still needs to wait for further confirmation from macro data.

(Responsible Editor: Wang Zhiqiang HF013)

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