Last Updated on 07/07/2026
The U.S. Dollar Index remains below 101.00 as easing expectations of Fed rate hikes offset concerns over Hormuz-related risks.
- The U.S. Dollar Index (DXY) continues to trade sideways on Tuesday, lacking sufficient momentum to break out of its recent range.
- Fresh tensions in the Strait of Hormuz provide support for the safe-haven U.S. dollar, helping limit downside pressure.
- However, fading expectations of additional Federal Reserve rate hikes keep bullish sentiment in check and restrict further gains in the greenback.
The U.S. Dollar Index (DXY) remained range-bound below 101.00 on Tuesday, extending its consolidation for a third consecutive session as geopolitical risks and monetary policy expectations pulled the dollar in opposite directions.
Renewed tensions between the U.S. and Iran, particularly in the strategically vital Strait of Hormuz, provided support for the safe-haven greenback. Reports of an oil tanker being struck in the waterway and Iran’s efforts to strengthen its control over the strait have raised concerns over the durability of the 60-day ceasefire agreement. The resulting uptick in crude oil prices has revived inflation worries, lending additional support to the U.S. dollar.
However, upside momentum remains limited as expectations for further Federal Reserve tightening continue to fade. Following June’s softer-than-expected Nonfarm Payrolls report, markets scaled back their outlook for Fed rate increases in 2026 from two hikes to between zero and one, reducing support for the dollar.
Adding to the cautious tone, the U.S. ISM Services PMI eased to 54.0 in June from 54.5 previously, meeting forecasts but offering little incentive for fresh USD buying. As a result, traders remain hesitant to extend the dollar’s rebound from the 97.40–97.45 support zone seen earlier this year.
Attention now turns to Wednesday’s FOMC Minutes, which could provide clearer guidance on the Fed’s policy outlook and determine the DXY’s next directional move.
US Dollar: Investor positioning continues to provide solid support into year-end – NBC
According to analysts Stéfane Marion and Kyle Dahms of National Bank of Canada, the US Dollar remains near its 2026 peak, supported by persistent inflation in the United States and a widening interest-rate advantage over other major economies. While these factors are likely to keep the greenback well supported in the near term, the analysts are increasingly cautious about the sustainability of the rally beyond the third quarter.
The dollar has strengthened against all major currencies over the past month as markets reassessed the outlook for US interest rates, reinforcing the currency’s yield advantage. However, NBC argues that expectations for imminent Federal Reserve tightening may be overdone.
June’s labor-market data painted a softer picture than headline sentiment suggests. Nonfarm payrolls increased by just 57,000, missing market expectations, while previous months’ figures were revised lower by a combined 74,000 jobs. Meanwhile, the household survey showed a decline of 507,000 employed workers and a notable drop in full-time employment, pointing to underlying weakness in the labor market.
NBC notes that speculative positioning has become increasingly skewed toward a stronger dollar, indicating that much of the bullish narrative may already be priced in. As a result, the USD could become more vulnerable to weaker inflation readings, further signs of labor-market cooling, or any scaling back of expectations for future Fed rate hikes.
The bank therefore expects the US Dollar to remain supported in the short term, but warns that slowing job growth and crowded market positioning make it difficult to justify extending the recent rally far beyond Q3. This view aligns with the gap between the Federal Reserve’s projections and private-sector forecasts: while roughly half of FOMC members still anticipate higher rates this year, only a small minority of economists expect additional tightening. NBC shares that skepticism, arguing that although inflation remains elevated enough to discourage rate cuts, labor-market conditions are soft enough to allow policymakers to remain patient before considering further hikes.
NBC’s broad USD index forecast reflects this outlook, with the index expected to gradually ease from 120.8 currently to 115.9 by Q2 2027, signaling a moderation rather than a reversal of dollar strength.
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