The US Dollar (USD) maintained its strength against major currencies this week, supported by escalating geopolitical tensions between the US and Iran and a cooling US inflation outlook. The US Dollar Index (DXY) reached a two-week high during the European session on Thursday, with bulls awaiting a breakout above the 100.00 mark for further gains [2]. Technical indicators such as the Relative Strength Index (RSI) at 58.50 and a positive MACD suggest buyers retain control, though a sustained move above resistance levels is needed for additional upside [2].
US inflation data released Wednesday showed headline CPI declining to 3.4% year-over-year in July from 3.5% in June, while core CPI cooled to 2.5%, both matching market forecasts [1][4]. This reinforced expectations for a more accommodative Federal Reserve stance, with the probability of a September rate hike falling to roughly 36% from 48% a day earlier, according to the CME FedWatch tool [1]. Deutsche Bank analysts noted that the benign CPI print reduced urgency for imminent Fed action, though their economists still expect a rate hike in September [4]. BNY’s Geoff Yu observed that the July Fed meeting marked a peak in Dollar dehedging, with cross-border investors rebuilding USD hedges and net US asset exposure falling sharply after the July 29 decision [3]. Dollar selling was concentrated against GBP, EUR, and CAD, while JPY and CNY remained exceptions [3].
The Japanese Yen (JPY) hovered near the crucial 160.00 level against the USD, with traders alert for possible intervention from Japanese authorities [1]. Despite intervention caution, the Yen remains under pressure due to wide interest rate differentials, fiscal worries, and rising import costs [1]. Commerzbank analysts highlighted that the Yen has given back much of its post-intervention gains, leaving markets reassessing the durability of earlier support [1].
The British Pound (GBP) traded in a tight consolidation band against the USD, briefly rising above 1.3535 before closing at 1.3496 (-0.09%) [5]. UOB analysts maintain a mildly constructive view, with scope to test 1.3555 but limited prospects for sustained gains beyond that level [5].
Emerging market currencies, such as the Indonesian Rupiah (IDR), remained subdued as safe-haven demand lifted the USD. USD/IDR traded around 17,920, appreciating amid US-Iran tensions [6]. However, the Rupiah rebounded earlier in the week following the nomination of Destry Damayanti as the sole candidate to lead Bank Indonesia, with analysts at OCBC noting that markets welcomed the continuity and stability expected from her leadership [6]. Indonesia’s fiscal discipline and strong tax revenue growth also supported investor confidence [6].
Across all sources, the US Dollar was the strongest against the New Zealand Dollar this week, with percentage changes against major currencies ranging from 0.26% to 1.05% [2][4].
CONCLUSION
The US Dollar remains resilient, buoyed by geopolitical risks and cooling inflation, which have tempered expectations for imminent Fed rate hikes. While the Yen and emerging market currencies face pressure, technical and fundamental factors suggest continued USD strength in the near term. Market participants are closely watching upcoming US economic data and central bank policy signals for further direction.