*see also: InstaForex trading indicators for USDX

The US dollar index (USDX) heads into the end of the week in a state of tense consolidation, trading in the early US session around 99.25 after a failed attempt to hold above a six-week high near 99.45. Quotes are currently testing the 99.30–99.35 area, reflecting a tug-of-war between two opposing forces: on one side, a hawkish pivot at the Federal Reserve and higher Treasury yields are supporting the dollar; on the other, renewed optimism about US–Iran negotiations is temporarily reducing demand for safe-haven assets.

Hawkish Fed pause

The primary driver of dollar strength remains a repricing of Fed policy expectations following the shocking inflation print (April CPI rose to 3.8% y/y). According to the CME FedWatch tool, markets now price in better than a 50% chance of a rate hike by December — a massive shift in just a few weeks.

Wednesday's release of the April FOMC minutes confirmed this hawkish shift. The document notes that "many" participants supported dropping the statement's easing bias. It also flagged that Iran-related inflationary pressures could stay above target longer than expected, which likely implies a willingness to keep policy rates higher for longer (possibly through the year).

The bond market, which is showing historically high yields, provides additional support to the dollar. 10-year Treasuries have settled above 4.60%, 20-year yields above 5.6%, and 30-year yields above 5.66%, levels last seen in 2007. Higher yields make dollar assets more attractive to foreign investors and underpin the dollar.

Geopolitical factor: ceasefire hopes

Alongside monetary pressure, markets are closely watching the situation in the Middle East. US President Donald Trump said talks with Iran are in the "final stage," and Iran reportedly submitted a new peace proposal. That news triggered a temporary correction in oil prices and weakened safe-haven demand for the dollar.

However, the optimism is fragile. Trump, while speaking of progress, also warned that "we may have to give them another big hit." Iran, in turn, says it is prepared to escalate. The maritime blockade of the Strait of Hormuz and supply disruptions remain, keeping a geopolitical premium embedded in the dollar.

Markets appear to have shifted focus from Middle East headlines back to domestic policy and rising yields but remain highly sensitive to any new developments. Some signs of diplomatic progress were enough to push the US dollar down from local highs, but a full reversal has not materialized.

Brief technical analysis

From a technical perspective, the USDX is trading in a short- and medium-term bullish regime while remaining bearish on the weekly chart, i.e. showing mixed dynamics.

At present, an important medium-term resistance sits at 99.25 (weekly EMA50). A decisive break above that level would give buyers greater confidence. The next target in that case would be the key resistance zone at 100.75 (monthly EMA50, weekly EMA200), the level separating a long-term bearish market from a bullish one.

• 14-day RSI is around 58, indicating a positive but not overbought impulse, leaving room for further upside.
• Stochastic on the daily chart has signalled an exit from overbought territory, which may point to a short-term correction or consolidation near resistance.
• OsMA continues to plot histogram bars in the buy area.

We highlight three scenarios:

• Positive — breakout above 99.70 and move to 100.50–100.75.
• Correction — pullback to 98.98 (daily EMA200)–98.88 (1-hour EMA200).
• Stress — breakout above 100.75 amid a worsening energy crisis and a hawkish Fed tone.

The absence of expected Fed hikes, at least before December, acts as a drag on the dollar. There is also significant uncertainty around how Kevin Warsh, the incoming Fed chair (to be sworn in on Friday), will approach policy — whether he will follow Trump's calls for interest rate cuts or respond to resurgent inflation. That uncertainty is another factor capping the dollar.

Key events

Conclusion

The US dollar finds itself at the intersection of two opposing forces. On one side, a hawkish Fed pivot (markets price in >50% chance of a rate hike by year-end) and rising Treasury yields (10-year >4.60%) create strong bullish momentum. The April FOMC minutes confirmed a willingness to keep rates higher for longer.

On the other side, renewed optimism around US–Iran talks is temporarily reducing demand for the dollar as a safe haven and triggering a pullback from local resistance near 99.50. In addition, uncertainty around policy under new Fed Chair Kevin Warsh (sworn in Friday) also contains upside for the dollar.

The key zone 98.68–99.50 will be the battleground in the coming days.

Holding above the 200-day EMA (98.98) will preserve the bullish tilt and the chance of a break above 99.50. A technical breakout above 99.50 would open the road to the psychological 100.00 level and the 2026 high at 100.20. Technical indicators point to moderate momentum but not overbought conditions, leaving room for further gains.

Economists note that the dollar's support is driven mainly by rates and risk-off flows, not by a strong US fundamental story. If yields decline and US data deteriorates, the upside impulse may fade. Investors should watch today's preliminary PMI prints, Kevin Warsh's swearing-in, and developments in Middle East diplomacy closely — the next few days will be decisive for the dollar's direction.