US Dollar Forecast: DXY Falls as Iran War De-Escalation Lifts Risk Appetite

Dollar Edges Lower as Investors Look Past Iran Conflict

The U.S. Dollar is edging lower against a basket of major currencies late Wednesday as investors look past the Iran conflict and unwind their safe-haven positions. Sentiment appears to have shifted just one day after the DXY hit a multi-month high. Yesterday, investors were buying the dollar as protection against anticipated inflation that would likely encourage the Federal Reserve to take a longer pause before it makes its first rate cut of the year. In my opinion, the length of the war between the U.S. and Iran is the key issue, but today’s price action suggests investors are now leaning toward it being a shorter-lived event than initially feared.

At 20:06 GMT, DXY is trading 98.760, down 0.311 or -0.31%.

NYT Report on Iran’s Willingness to End the War Lifts Risk Appetite

Risk appetite was lifted overnight and the dollar weakened after a New York Times report said Iran’s Ministry of Intelligence had signaled to the U.S. Central Intelligence Agency (CIA), its willingness to end the war. The Times cited officials briefed on the matter.

Sellers also weighed on the dollar after Treasury Secretary Scott Bessent told CNBC on Wednesday that the U.S. is going to make “a series of announcements” to protect oil flowing through the region. This was also on top of President Trump’s statement the day before that the U.S. would provide risk insurance to all maritime trade.

So far we haven’t seen any concrete plans from the U.S. on either issue, but traders sold the dollar anyway, likely in response to weaker oil prices and a stronger U.S. stock market.

Was It Really Safe-Haven Buying or Just Short-Covering?

Despite the “noise” from the war, fueling a rally to a multi-month high, I’m convinced it was created mostly by short-covering and technical momentum traders. Yes, the textbook reaction to an event like a war is to buy the U.S. Dollar. That may be if you perceive it to be a safe-haven asset. However, we’re currently in an era of doubt about the strength of the U.S. dollar because of the possibility of two Federal Reserve rate cuts later this year.

If traders weren’t buying the dollar for an investment then did safe-haven buying really trigger this week’s rally? I doubt that because true safe-haven buying usually favors Treasury bonds too. During a typical safe-haven moment, investors tend to buy both dollars and T-bonds. However, on Monday and Tuesday, we saw Treasuries spike lower and the dollar move higher.

We can even build the case for the dollar going up because the Euro went down. That makes even more sense especially since Europe will get hit hard if crude oil and natural gas supply is greatly impacted by the war, causing a supply shortage in Europe.

200-Day MA at 98.351 and Trend Lines Will Set the Near-Term Direction

Technically, trader reaction to the 200-day moving average at 98.351 and the 50-day MA at 97.926 will determine the near-term direction of DXY.

We’re also monitoring the upcoming reaction to a pair of trend lines. Crossing to the weak side of 98.715 will indicate momentum has shifted lower. Breaking 97.800 will change the trend to down and could trigger a steep break.

More Information in our Economic Calendar.