The US Dollar Index (DXY) dropped for a second straight day on Tuesday, testing the critical 100.00 level, as markets digested the political fallout from a recent US debt downgrade and controversial remarks by President Trump on Russia-Ukraine peace talks. Investor sentiment took a hit after Trump declared that the US might walk away entirely from negotiations, sparking concerns over American credibility on the global stage.
US Credit Downgrade and Geopolitical Stumbles Hit the Dollar
The latest decline in the US Dollar Index follows Moody’s decision to downgrade US debt, which has disrupted US bond markets and sparked broader concerns about the nation’s financial health. Compounding the issue, Trump’s post-call comments with Russian President Vladimir Putin—claiming the US will no longer involve itself in the Ukraine conflict—have rattled global allies and added to the Dollar’s downward momentum.
The EU has strongly criticized Trump’s disengagement strategy, stating that US involvement is critical to any resolution. Analysts believe the Dollar’s role as a global haven is now under review, especially as France, the UK, and Canada consider sanctions against Israel over its Gaza actions, creating further global instability.
Fed Speakers in Focus, but Market Remains Skeptical
While Tuesday is relatively light on US economic data, investors are closely watching a parade of Federal Reserve speakers. From Richmond Fed’s Thomas Barkin to Governor Adriana Kugler and Atlanta Fed’s Raphael Bostic, policymakers are expected to offer insights into the path of monetary policy.
Despite hawkish tones earlier this week, the CME FedWatch tool shows only an 8.6% chance of a rate cut in June, with a modest 33.1% chance in July. Yields on US 10-year Treasuries have settled around 4.43%, down from Monday’s spike, signaling a cooling of initial volatility.
US Dollar Index on the Brink
Technically, the DXY is facing strong headwinds. The 100.22 ascending trendline is under pressure, and a break below could trigger a deeper correction toward the 2022 low of 97.91. Further support lies at 97.73, and if bearish momentum continues, levels as low as 96.94 or even 94.56 could come into play.
On the upside, any bullish reversal would need to reclaim 101.90, a historically significant resistance reinforced by the 55-day Simple Moving Average at 101.94. If that breaks, the next major resistance lies at 103.18.
However, with sentiment dented by a perceived loss of diplomatic and fiscal credibility, the near-term bias remains tilted to the downside.
Conclusion
The US Dollar Index is caught in a web of political uncertainty and fiscal skepticism. With Moody’s downgrade still fresh and President Trump’s Ukraine withdrawal comments shaking allies, the Dollar’s position as a global safe haven is being re-evaluated. While technical support remains for now, the path ahead looks precarious unless confidence is quickly restored.
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