US Dollar Index Falls for a Third Session as Markets Balance Risk Sentiment and Fed Expectations

VG Markets · 2026-06-29T09:38:26Z
US Dollar Index Falls for a Third Session as Markets Balance Risk Sentiment and Fed Expectations

The US Dollar Index (DXY) traded near 101.20 during Tuesday's European session, extending its decline for a third consecutive trading day. The move followed reports of easing tensions between the United States and Iran ahead of planned diplomatic discussions, reducing demand for traditional safe-haven assets. At the same time, expectations for higher US interest rates continued to provide underlying support for the Dollar.

Demand for the US Dollar strengthened in recent sessions as geopolitical tensions in the Middle East increased concerns about regional stability and global energy supplies. Recent reports suggesting a temporary reduction in hostilities have improved overall market sentiment, encouraging investors to shift toward higher-risk assets and reducing some safe-haven demand for the Dollar.

Currency market performance reflected this change in sentiment. The New Zealand Dollar, Euro and British Pound all strengthened against the US Dollar during Monday's trading, while gains in the Japanese Yen and Swiss Franc were comparatively limited. The differing performance highlights the continued influence of interest-rate expectations alongside changing market risk sentiment.

Another important factor for the Dollar remains the outlook for US monetary policy. According to CME FedWatch, markets continue to expect the possibility of another Federal Reserve interest-rate increase later this year. Investors are now focusing on Thursday's US Nonfarm Payrolls report, which is expected to provide additional information about labour market conditions and could influence expectations for future policy decisions.

Although recent geopolitical developments have reduced some demand for the Dollar as a safe-haven asset, expectations surrounding Federal Reserve policy continue to provide support. Investors are therefore closely monitoring both economic data and geopolitical developments as they assess the next direction for the US Dollar.

What to Watch

Middle East diplomatic developments (Tuesday)

Investors will monitor whether ongoing diplomatic discussions help maintain recent improvements in regional stability. Any renewed tensions could affect demand for safe-haven assets, including the US Dollar.

US Nonfarm Payrolls (Thursday)

The employment report will provide further insight into the strength of the US labour market. Investors will assess whether the results influence expectations for future Federal Reserve interest-rate decisions.

NZD/USD and AUD/USD performance

Movements in the New Zealand Dollar and Australian Dollar may provide additional insight into overall market risk sentiment as investors adjust their positioning.

DXY around the 101.00 level

Market participants will continue watching whether the Dollar Index remains above the 101.00 area, which is viewed as an important short-term technical level.

Source: CME FedWatch, Bloomberg survey, FXStreet.