The US dollar is struggling around the 101 level: geopolitical risks are supporting the market, but weak non-farm payroll data is dragging it down, and the FOMC minutes will be key to breaking the deadlock.
2026-07-08 11:40:46
On Wednesday (July 8) during the Asian session, the US dollar index (DXY) held steady above 101.00 for the second consecutive trading day, currently trading around 101.05.
The US military launched airstrikes against Iran in response to attacks on merchant ships in the Strait of Hormuz, reigniting geopolitical tensions and providing strong support for the US dollar as a safe-haven asset.
On Tuesday, the U.S. military launched airstrikes against Iran in response to Iranian attacks on merchant ships in the Strait of Hormuz—including a Qatari liquefied natural gas carrier and a Saudi oil tanker. This military action directly threatens the fragile peace agreement signed by the U.S. and Iran last month, triggering market panic over a large-scale disruption to global energy supplies.
The sudden escalation of geopolitical tensions quickly boosted demand for the US dollar as a safe-haven asset. As the world's primary reserve currency and safe-haven asset, the dollar is typically sought after during periods of heightened uncertainty. Shipping companies and local producers bypassing this strategic waterway further exacerbated concerns about supply disruptions, providing additional upward momentum for the dollar.
While safe-haven demand supported the dollar, the continued cooling of market expectations for a Federal Reserve rate hike is limiting its upside potential. Last week's US June non-farm payroll data showed an increase of only 57,000 jobs, far below market expectations of 110,000 and also lower than the revised 129,000 in May. This data prompted traders to significantly reduce their bets on a Fed rate hike.
According to data from the London Stock Exchange Group (LSEG), market pricing for a cumulative rate hike by the Federal Reserve before the end of the year has fallen from 38 basis points a week ago to about 26 basis points. This means the market expects a maximum of one rate hike this year (25 basis points), and the magnitude of the hikes has narrowed, limiting the momentum for further dollar appreciation.
Recent statements from Federal Reserve officials have shown a subtle divergence, providing the market with more clues to observe the direction of policy.
Federal Reserve Governor Christopher Waller expressed caution regarding policy communication on Monday. He noted that forward guidance can be a valuable tool when used appropriately, but it can also cause problems if used improperly. This statement suggests that policymakers are rethinking their approach to policy communication, potentially indicating that future policy signals will be more cautious.
New York Federal Reserve President John Williams (Tuesday) offered a more reassuring signal. He stated that his concerns about domestic price pressures have eased due to the recent decline in energy prices—a trend he expects to continue. Williams' tone was moderately constructive, but he also acknowledged that inflation remains quite high, meaning policy direction will remain data-dependent.
The market interpreted Williams' remarks as suggesting that the Fed's policy is "in a good position," but did not rule out the possibility of future adjustments, and the subsequent policy path will depend on data evolution and changes in risks.
According to the FXS Federal Funds Rate Sentiment Index, the index fell 0.34 points to 125.38, indicating that the market's perception of the Federal Reserve as hawkish has declined compared to the previous reading.
However, it is worth noting that the index remains firmly in the hawkish zone above 100, indicating that policy expectations still tend towards tightening, even though the tone of this speech was slightly softer than the historical average (FXS speech tracker baseline).
FXS Speech Tracker rated Williams' speech at 5.6/10, slightly below the historical average of 5.8/10, indicating that its tone was slightly more moderate than the market expected.
Emphasizing trend-based growth, a stable job market, declining energy prices helping to curb inflation, and the nearing peak impact of tariff shocks all reinforce confidence that policy is "well-positioned," but the reality of persistently high inflation means that a data-dependent bias remains.
According to the daily chart, in terms of price structure, 101.80 is a strong short-term resistance level, while the 20-day moving average (MA20) at 100.80 is a key defensive level for the bulls. If the price holds above this support, it may retest the previous high after a period of consolidation at higher levels. However, if it breaks below 100.80, the market will likely initiate a phase of correction, with the next support level to be the psychological level of 100.
(US Dollar Index Daily Chart, Source: FX678)
At 11:40 AM Beijing time on July 8, the US dollar index was at 101.08.
The US military launched airstrikes against Iran in response to attacks on merchant ships in the Strait of Hormuz, reigniting geopolitical tensions and providing strong support for the US dollar as a safe-haven asset.
Geopolitics: US airstrikes on Iran boost safe-haven demand and push up the US dollar.
On Tuesday, the U.S. military launched airstrikes against Iran in response to Iranian attacks on merchant ships in the Strait of Hormuz—including a Qatari liquefied natural gas carrier and a Saudi oil tanker. This military action directly threatens the fragile peace agreement signed by the U.S. and Iran last month, triggering market panic over a large-scale disruption to global energy supplies.
The sudden escalation of geopolitical tensions quickly boosted demand for the US dollar as a safe-haven asset. As the world's primary reserve currency and safe-haven asset, the dollar is typically sought after during periods of heightened uncertainty. Shipping companies and local producers bypassing this strategic waterway further exacerbated concerns about supply disruptions, providing additional upward momentum for the dollar.
Monetary Policy: Weak non-farm payroll data and cooling interest rate hike expectations limit the dollar's gains.
While safe-haven demand supported the dollar, the continued cooling of market expectations for a Federal Reserve rate hike is limiting its upside potential. Last week's US June non-farm payroll data showed an increase of only 57,000 jobs, far below market expectations of 110,000 and also lower than the revised 129,000 in May. This data prompted traders to significantly reduce their bets on a Fed rate hike.
According to data from the London Stock Exchange Group (LSEG), market pricing for a cumulative rate hike by the Federal Reserve before the end of the year has fallen from 38 basis points a week ago to about 26 basis points. This means the market expects a maximum of one rate hike this year (25 basis points), and the magnitude of the hikes has narrowed, limiting the momentum for further dollar appreciation.
Fed officials speak: Waller is cautious, Williams sends reassuring signals
Recent statements from Federal Reserve officials have shown a subtle divergence, providing the market with more clues to observe the direction of policy.
Federal Reserve Governor Christopher Waller expressed caution regarding policy communication on Monday. He noted that forward guidance can be a valuable tool when used appropriately, but it can also cause problems if used improperly. This statement suggests that policymakers are rethinking their approach to policy communication, potentially indicating that future policy signals will be more cautious.
New York Federal Reserve President John Williams (Tuesday) offered a more reassuring signal. He stated that his concerns about domestic price pressures have eased due to the recent decline in energy prices—a trend he expects to continue. Williams' tone was moderately constructive, but he also acknowledged that inflation remains quite high, meaning policy direction will remain data-dependent.
The market interpreted Williams' remarks as suggesting that the Fed's policy is "in a good position," but did not rule out the possibility of future adjustments, and the subsequent policy path will depend on data evolution and changes in risks.
Dollar sentiment indicator: Hawkish sentiment has eased slightly, but remains at a high level.
According to the FXS Federal Funds Rate Sentiment Index, the index fell 0.34 points to 125.38, indicating that the market's perception of the Federal Reserve as hawkish has declined compared to the previous reading.
However, it is worth noting that the index remains firmly in the hawkish zone above 100, indicating that policy expectations still tend towards tightening, even though the tone of this speech was slightly softer than the historical average (FXS speech tracker baseline).
FXS Speech Tracker rated Williams' speech at 5.6/10, slightly below the historical average of 5.8/10, indicating that its tone was slightly more moderate than the market expected.
Emphasizing trend-based growth, a stable job market, declining energy prices helping to curb inflation, and the nearing peak impact of tariff shocks all reinforce confidence that policy is "well-positioned," but the reality of persistently high inflation means that a data-dependent bias remains.
According to the daily chart, in terms of price structure, 101.80 is a strong short-term resistance level, while the 20-day moving average (MA20) at 100.80 is a key defensive level for the bulls. If the price holds above this support, it may retest the previous high after a period of consolidation at higher levels. However, if it breaks below 100.80, the market will likely initiate a phase of correction, with the next support level to be the psychological level of 100.
(US Dollar Index Daily Chart, Source: FX678)
At 11:40 AM Beijing time on July 8, the US dollar index was at 101.08.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
