The US Dollar Index spent the week under moderate pressure, reflecting shifting expectations around U.S. monetary policy and improving risk appetite in global markets. After sliding early in the week, the dollar stabilized near the 98 handle, suggesting investors may be reassessing downside momentum as global currencies strengthened.

Dollar Weakness Driven by Easing Rate Expectations

The DXY began the week trading above 98.50, but persistent selling quickly pushed it lower. U.S. Treasury yields softened as markets continued to price in a more dovish Federal Reserve trajectory heading into early 2026. Traders increasingly expect the Fed to slow future rate hikes — or potentially cut rates by mid-year — a dynamic that historically weighs on the greenback.

This sentiment was reflected in broad moves across FX markets: the euro, yen, and select emerging-market currencies saw modest appreciation as investors rotated into higher-beta assets. For Israeli investors, the weaker dollar translated into mild shekel strength, contributing to calmer regional currency dynamics after months of heightened volatility.

Technical Signs of Stabilization After Hitting Weekly Lows

The chart shows the DXY touched a weekly low around 97.75, where buyers appeared to step in. From mid-week onward, the index gradually climbed back toward 98.05, the final closing level.

This pattern suggests a potential short-term support zone forming in the high-97 range. While the dollar remains below last week’s close (98.02), the late-week stabilization indicates slowing bearish momentum. Market participants will be watching whether the DXY can reclaim the 98.50 level — which acted as resistance earlier in the week — to confirm a broader recovery.

Macro Forces Shaping Currency Markets

Beyond Fed expectations, global macroeconomic sentiment played a significant role. Stronger-than-expected economic data from Europe and improving manufacturing indicators in Asia supported non-USD currencies. Meanwhile, risk assets — including equities and commodities — saw inflows, typically reducing demand for the safe-haven dollar.

U.S. economic data releases were mixed, with softer consumption and moderating inflation indicators contributing to the dollar’s pullback. For global markets, including Israel’s שווקי ההון, a weaker dollar helped ease import-cost pressures and supported broader risk sentiment.

Looking ahead, the dollar’s trajectory will depend on several catalysts: upcoming U.S. inflation data, Fed communications, and the evolving macro landscape across Europe and Asia. Should Treasury yields continue to drift lower, the DXY faces further downside risk; however, geopolitical tension or economic surprises could re-ignite demand for safe-haven assets. Investors will be watching whether the index can hold above its emerging support zone — a critical signal for FX volatility in the weeks ahead.

Category: Bonds & Foreign Exchange / Market News & Breaking Updates