The US Dollar Index (DXY) has entered its third consecutive day of losses, falling more than 1.5% as a mix of global instability and domestic dysfunction weighs on market confidence. The latest catalyst comes from escalating Middle East tensions and renewed uncertainty surrounding President Trump’s flagship tax legislation.
Israel-Iran Conflict Escalation Roils Markets
Reports emerged late Tuesday that Israel is preparing to strike Iranian nuclear sites, undermining Trump’s recent diplomatic efforts in the region. Traders are reacting with caution, viewing the move as a potential flashpoint in already fragile geopolitical dynamics. The growing distance between Israeli and US positions has left investors doubting Trump’s influence in the Middle East.
Before this report, Trump had promoted a fresh nuclear deal with Iran during his regional tour. The sudden reversal now risks market stability, pushing the US Dollar Index below the critical 100.00 level — its lowest in recent weeks.
Tax Bill Stalemate Fuels Dollar Weakness
While international affairs dent confidence abroad, legislative disarray at home is further weakening the greenback. Trump’s latest attempt to push through his long-touted “Big Beautiful Bill” has hit a wall, as Republican hardliners and lawmakers from high-tax states clash over the state and local tax (SALT) deduction cap.
Despite House Speaker Mike Johnson offering a $40,000 SALT cap compromise, key GOP members like Chip Roy remain firm in their opposition. This continued deadlock casts doubt over the bill’s passage, denting investor optimism and dragging the dollar down further.
Technical Breakdown Points to Further Downside
The DXY’s technical indicators are flashing red. Having breached the key support at 100.22, the index now targets a move toward 99.50. If that fails to hold, a decline to 97.91 — the year-to-date low — may be imminent. The outlook is compounded by weakening sentiment in US equity markets and a significant drop in mortgage applications, down -5.1% on the week.
Meanwhile, hawkish Fed talk including comments from Richmond Fed President Thomas Barkin — has failed to support the dollar, with market expectations for a June rate cut sitting at just 5.4%, according to the CME FedWatch tool.
Dollar Bears in Control
As the dollar battles headwinds on all fronts geopolitics, fiscal dysfunction, and technical fragility — traders are reassessing short-term bets on the greenback. Without policy clarity or diplomatic wins, the DXY may face deeper losses, potentially breaking multi-year lows not seen since 2022.
Unless sentiment shifts, the US Dollar may remain vulnerable, especially as global markets increasingly view the euro and other currencies as safer bets in the current risk-off environment.
About The Author
