The US Dollar Index continued its decline during Thursday's Asian trading session, hovering around 97.90 and extending the downward trend observed since April 6th. The overall weakness in the dollar is primarily driven by a dual impact of improving market risk sentiment and shifting macroeconomic interest rate expectations.
Signs of easing geopolitical tensions between the US and Iran have emerged, with market participants anticipating a potential de-escalation of conflict. There is even a possibility of a ceasefire extension by approximately two weeks to facilitate longer-term negotiations. Although related uncertainties persist, the overall risk premium has significantly decreased, prompting capital outflows from safe-haven assets like the US dollar.
Concurrently, while the Strait of Hormuz remains effectively restricted, the potential restoration of certain transit mechanisms following successful negotiations would help further stabilize energy supply expectations. This shift in expectations is suppressing crude oil risk premiums, thereby indirectly impacting the dollar.
The retreat in oil prices has become a significant factor currently weighing on the dollar. Lower energy prices are alleviating global inflationary pressures, leading to a marked cooling in market expectations for further interest rate hikes by the Federal Reserve. The prevailing market view now anticipates that the Fed will hold rates steady this month and potentially maintain elevated rates throughout the year, suggesting a gradual convergence in the dollar's interest rate advantage.
From the perspective of inflation transmission mechanisms, energy prices remain a critical variable. Federal Reserve official Beth Hammack noted the current need to closely monitor the magnitude and duration of any rise in energy prices, while another official, Musalem, emphasized that oil price shocks stemming from the Middle East situation could keep core inflation around the 3% level. This implies that while short-term inflationary pressures have eased somewhat, structural pressures persist. Against this backdrop, the dollar is caught in a tug-of-war between 'declining inflation expectations' and 'persistent structural inflation,' but current market pricing favors the former, thereby pushing the dollar index lower.
From a broader market structure perspective, the dollar index has broken below its short-term consolidation platform, entering a bearish phase, though it has not yet formed an accelerated downtrend, favoring instead a pattern of 'slow, grinding decline with intermittent downward shifts.'
Technically, on the daily chart, the dollar index has formed a series of bearish candles following its retreat from recent highs, with prices trading below short-term moving averages, indicating bearish dominance. The key resistance overhead is near the 98.50 area, which aligns with a previous rebound high and a concentration of moving averages; further resistance lies at 99.20. A sustained move above this latter level could potentially reverse the short-term weak structure. For support, initial levels are found around 97.50, a zone of recent lows; a break below the next key support at 96.80 could open the door for a deeper correction.
Momentum indicators show the RSI persistently below 50, signaling dominant bearish momentum, though it has not yet reached extreme oversold territory, suggesting the downtrend may continue but with potential for intermittent pauses. The 4-hour chart shows the index maintaining its descent within a downward channel, with rally attempts consistently capped, indicating strong bearish control. The MACD indicator remains below the zero line without significant recovery, confirming the dominance of downward momentum. However, short-term technical rebound potential exists; if any rebound is stifled near the 98.30 area, a renewed decline to test lower support levels is likely.
In summary, the US Dollar Index is currently in a 'weak downward cycle driven by risk sentiment,' but given that the inflation structure is not yet fully stabilized, the market has not yet formed a consensus for a one-sided, accelerated sell-off.
Overall, the dollar's decline is primarily fueled by improved risk appetite and falling energy prices, which collectively undermine its safe-haven appeal and interest rate support expectations. Structurally, however, inflation remains sticky, and the Fed has not entered a clear easing cycle, suggesting the dollar retains a degree of underlying resilience. The future trajectory will critically depend on three factors: whether Middle East tensions continue to ease, whether oil prices decline further, and whether inflation data shows signs of reacceleration. In this context, the dollar index is likely to maintain a weak, oscillating downward bias in the short term, though technical rebound risks warrant caution.