Last Updated on 21/08/2026
US Dollar Index Holds Near Three-Month Low Amid Fading Fed Rate-Hike Bets
The US Dollar Index (DXY), which measures the performance of the US Dollar against a basket of major currencies, remains under pressure during Friday’s Asian trading session. After a modest rebound the previous day, the index attracted fresh selling and hovered around the 98.80–98.75 area, remaining close to its lowest level since mid-May.
USD Remains Under Pressure as Fed Rate-Hike Expectations Fade
The US Dollar continues to face headwinds as markets scale back expectations for an immediate Federal Reserve interest rate hike. Softer-than-expected US inflation data released last week reinforced expectations that the Fed may maintain its current policy stance, weighing on demand for the Greenback.
The impact of the US Treasury’s decision to increase certain long-term debt buyback operations has also diminished. Meanwhile, renewed inflation concerns linked to higher energy prices could continue to support US Treasury yields, potentially limiting the downside for the Dollar.
Geopolitical Risks Provide Support for the Safe-Haven USD
Rising geopolitical tensions are another factor preventing a sharper decline in the US Dollar. Crude oil prices climbed to a three-week high after President Donald Trump announced tougher economic measures against Iran and warned of severe penalties for countries conducting business with Tehran or helping it circumvent sanctions.
Higher oil prices could fuel inflation concerns and keep US bond yields elevated. At the same time, escalating tensions may increase demand for the US Dollar as a traditional safe-haven asset.
Market pricing also remains relatively supportive of the USD. The CME FedWatch Tool shows that traders continue to assign roughly a 68% probability of at least one Federal Reserve rate hike by the end of the year. This outlook could help cushion the DXY against deeper losses.
DXY Technical Outlook
From a technical perspective, the US Dollar Index maintains a bearish near-term bias while trading below its 200-day Simple Moving Average (SMA) near 99.16.
The recent failure to sustain gains above the 78.6% Fibonacci retracement around 98.52 leaves the index vulnerable to additional selling pressure. On the upside, the 200-day SMA and the 61.8% Fibonacci retracement near 99.22 form a significant resistance zone that could limit any recovery.
Overall, the DXY remains vulnerable to further declines, although persistent inflation risks, elevated Treasury yields and geopolitical uncertainty could provide support for the US Dollar and slow its downward momentum.
USD/JPY Steadies Near 159.00 as Japan Inflation Strengthens BoJ Rate-Hike Bets
The Japanese Yen (JPY) traded largely sideways against the US Dollar on Friday, with USD/JPY hovering around 159.05 during the early Asian session. Stronger-than-expected inflation data from Japan reinforced expectations that the Bank of Japan (BoJ) could raise interest rates at its upcoming September meeting, helping offset concerns over weaker domestic growth.
Japan Inflation Strengthens BoJ Rate-Hike Expectations
Japan’s headline Consumer Price Index (CPI) rose 2.0% year over year in July, accelerating from 1.6% in June. Meanwhile, core CPI, which excludes volatile fresh food prices but includes energy costs, increased 1.8% YoY, up from 1.6% previously.
The pickup in underlying inflation could strengthen the case for further monetary policy normalization by the BoJ. Market pricing currently reflects an approximately 80% probability of a rate hike at the next policy meeting, while expectations are building for the central bank to lift its policy rate from 1.0% to 1.25% in September.
Higher energy prices could further reinforce inflationary pressures. Renewed tensions in the Middle East have pushed oil prices higher, while the weaker Yen may also contribute to imported inflation in Japan.
Geopolitical Risks Could Limit Yen Gains
Despite stronger inflation data and rising BoJ rate-hike expectations, geopolitical developments could restrict the Yen’s upside. Japan remains heavily dependent on Middle Eastern energy supplies, meaning a prolonged escalation in the region could increase oil prices and weigh on Japan’s economic outlook.
At the same time, heightened geopolitical uncertainty may boost demand for the US Dollar as a safe-haven asset, providing additional support for USD/JPY.
However, the Yen’s medium-term outlook appears to be improving. Firmer BoJ policy, structural reforms and a resilient Japanese economy could gradually strengthen the JPY and provide a fundamental counterweight to the US Dollar.
USD/JPY Technical Outlook
From a technical perspective, USD/JPY retains a bearish near-term bias as the pair remains below both the 100-day Simple Moving Average (SMA) and the 20-period Bollinger middle band.
Initial resistance is located around 159.45, followed by the 100-day SMA near 160.00. A sustained break above this zone would be needed to weaken the current bearish structure, with the upper Bollinger Band around 163.30 representing a further upside barrier.
On the downside, the lower Bollinger Band near 155.50 provides the next major technical support. A decisive break below recent lows could expose this area and reinforce the broader bearish outlook.
Overall, USD/JPY remains vulnerable to further declines while capped below the 159.45–160.00 resistance zone, although geopolitical risks and safe-haven demand for the US Dollar could limit the Yen’s gains.
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