United States Dollar Index eases as US-Iran optimism curbs safe-haven demand

• Lower expectations of a December Fed rate rise and weaker safe-haven demand weigh on DXY as Middle East tensions ease.
• Immediate inflation worries ease as US-Iran peace talks help stabilise crude oil prices.
• Strong US GDP figures and evidence of a tight labour market underline economic resilience, curbing Dollar losses.

At around 101.70 during Friday’s Asian session, the US Dollar Index (DXY) is extending its decline into a third consecutive day. The index tracks the US Dollar (USD) against a basket of six major currencies.

The probability of a 25-basis-point rate rise now stands at nearly 75%, down from 84.2% a day earlier, according to market pricing indicated by the CME FedWatch Tool. Expectations of a Federal Reserve (Fed) increase at its December meeting have softened as reduced Middle East tensions temper concerns over oil supplies and inflation. Hopes for US-led diplomatic peace talks are also diminishing demand for safe havens, putting pressure on the Greenback.

A Wall Street Journal report that US Vice President JD Vance had contacted Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, on Wednesday to try to revive peace talks helped keep crude oil prices stable. Confirming that he had authorised Vance’s diplomatic approach, US President Donald Trump also said Iran needed help with medical supplies and other essential resources.

Recent US economic releases, however, point to ongoing resilience and have strengthened bets on a Fed rate rise. Supported by robust consumer spending growth of 3.8% YoY, preliminary Gross Domestic Product came in at 3.4% YoY. That exceeded the 3.2% forecast and marked an increase from Q2’s 2.2% reading.

Further evidence of an economy gaining momentum and a tight labour market came from initial jobless claims, which edged down to 194K. Meanwhile, the Core PCE Price Index, the Fed’s preferred inflation gauge, increased by 3.1% YoY, matching expectations.

Technical Outlook: Dollar Index Holds Between Key EMAs

With Dollar Index Spot at 101.70 on the daily chart, the price remains above its 50-day Exponential Moving Average (EMA), while the nine-day EMA continues to cap gains. This leaves the near-term outlook neutral following the recent retreat from the highs. A decline in the 14-day Relative Strength Index (RSI) to 51.47 points to consolidation rather than a firm directional move. At the same time, the FXS Fed Sentiment Index reading of 141.89 signals heightened policy-related uncertainty, which could constrain sustained trends.

The 9-day EMA at 101.93 provides the first resistance level; a convincing break above it would clear a path towards another test of the recent peaks. Initial support lies at the 50-day EMA of 101.21. A daily close beneath that level would likely restore a more bearish bias, as the index would begin to fall below the base of its medium-term trend.

Steeper Treasury curve viewed as support for the broader USD outlook

As investors reconsider the growth outlook and the currency’s underlying support, Scotiabank strategists draw attention to recent Treasury market moves. They note that “price action in the Treasury curve was notable,” and say Chair Warsh’s comments ultimately produced “a meaningful steepening in 2s-10s – a powerful signal for growth.” Calling it “a welcome move away from inversion,” they emphasise that it is one “that carries clear implications for the USD more broadly,”.

(The technical analysis of this story was written with the help of an AI tool. Know more.)