The DXY is showing a notable recovery after pulling back to a short-term low around the 100.2–100.3 area.
The main driver supporting the U.S. dollar comes from the return of safe-haven demand, as markets continue to monitor new developments between the United States and Iran.
When geopolitical risks rise, capital tends to flow into safer assets, helping the U.S. dollar regain support after its previous correction.
Before this rebound, the DXY came under pressure after retreating from the 101.5 area, following a series of weaker-than-expected U.S. labour market data. Signs of cooling in the labour market led investors to scale back expectations that the Fed would continue raising interest rates in the near term, putting pressure on the U.S. dollar.
However, the decline in the DXY was not too deep, as the overall U.S. economic picture remains mixed rather than clearly weak. Some data point to slower growth momentum, but the economy as a whole remains relatively resilient, leaving the market with insufficient grounds to strongly price in an early Fed easing cycle.
At present, the DXY continues to receive support from several factors, including geopolitical tensions, rising oil prices, and concerns that inflationary pressures could return. The rebound in oil prices has raised concerns over higher energy costs, which could make the process of bringing inflation back toward the 2% target more difficult. Against this backdrop, the Fed may continue to maintain a cautious stance instead of rushing into monetary easing.
In addition, at its June meeting, the Fed kept interest rates unchanged in the 3.5%–3.75% range, while emphasising that inflation remains above target and that the U.S. economy is still relatively solid. This message suggests that the Fed is not yet ready to send a clearly dovish signal, especially while inflation risks remain present. This continues to be supportive for the U.S. dollar, particularly during periods when markets need to reassess the interest-rate outlook.
That said, after an extended recovery, the DXY may still face short-term corrective pressure, especially if buying momentum weakens around recent resistance areas. The U.S. dollar has also become more sensitive to upcoming economic data, particularly indicators related to employment, inflation, and consumer spending. If the data continue to show clearer signs of a slowdown in the U.S. economy, expectations for the Fed to maintain a hawkish policy stance could be challenged, limiting further upside for the DXY.
Overall, the DXY is still trading near recent highs, supported by safe-haven demand and expectations that the Fed will maintain a cautious stance. However, the current upward momentum is not yet fully sustainable, as markets continue to balance geopolitical risks, inflationary pressures, and signs of cooling in the U.S. economy. Therefore, in the short term, the DXY may continue to move in a cautious range, with a slight recovery bias as long as external risk factors remain in place.
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