By Rania Gule, Senior Market Analyst at XS.com – MENA
In light of the recent moves in the U.S. Dollar Index, I believe that the current rebound toward the 96.00 level should not be interpreted as the beginning of a structural shift in the trend of the U.S. currency. Rather, it reflects a temporary phase of repositioning and caution ahead of a highly significant monetary event. The dollar’s recovery from four-year lows is unfolding in an extremely sensitive context, where monetary factors intersect with political uncertainty, making any superficial reading of price action prone to error.
From a timing perspective, this rebound occurred during the Asian session and just ahead of the Federal Open Market Committee decision—a classic window that typically sees a temporary reduction in short positions, especially after sharp sell-offs. Investors and traders tend, in such moments, to reduce exposure not out of conviction that the trend has changed, but while waiting for clearer signals from monetary policymakers. Therefore, the dollar’s rise at this juncture reflects defensive behavior rather than a genuine shift in risk appetite toward the U.S. currency.
The pivotal event remains, without doubt, the Federal Reserve’s decision and the subsequent press conference. While expectations are largely aligned around holding interest rates steady, markets are focused less on the decision itself and more on the language used and forward guidance. In my view, any signal from Jerome Powell suggesting comfort with slowing inflation or a weakening labor market would immediately be interpreted as paving the way for further rate cuts in 2026—a scenario that is structurally negative for the dollar.
More importantly, the dollar is no longer benefiting from its yield advantage as it once did. The gap between U.S. monetary policy and that of its peers has begun to narrow, and with growing bets on at least two additional rate cuts next year, the dollar is losing one of its key pillars of strength from recent years. This shift in expectations, even if gradual, weighs on the U.S. currency over the medium term and makes any short-term rebound vulnerable to fading.
Beyond the monetary factor, the political dimension—which has clearly become a source of pressure—cannot be ignored. Rising concerns over the Federal Reserve’s independence, amid ongoing debate about the future of some of its members and statements related to appointing a new central bank chair, represent a genuine source of anxiety for markets. Monetary policy independence is not a theoretical concept, but a fundamental prerequisite for global investor confidence in the dollar as a reserve currency. Any questioning of this independence, even at the level of political rhetoric, has a direct impact on the currency’s long-term valuation.
Statements by U.S. President Donald Trump—whether related to interest rates or his trade and geopolitical stance—add another layer of uncertainty. Historically, the dollar has benefited from periods of institutional stability, while it has suffered when messages from monetary policy and the executive branch conflict. At the current stage, this divergence appears more likely to intensify rather than recede, limiting the dollar’s ability to achieve sustainable gains.
I also believe that the break below the key support levels at 97.20–97.00 was not a fleeting event, but an important technical signal confirming a shift in the balance of power in favor of sellers. This break opened the door to an acceleration toward lows not seen since early 2022, and any rebound that fails to reclaim these levels remains within the scope of a technical correction. Based on current conditions, the path of least resistance remains downward, increasing the likelihood of fresh selling waves on any rally.
Accordingly, I view the current move in the Dollar Index as a “tactical pause” within a broader downtrend. Traders looking to establish new positions will likely seek higher levels to re-enter short positions, especially if the Federal Reserve’s tone disappoints those betting on a more hawkish stance. Conversely, I see no strong catalysts capable of altering the broader picture unless there is a fundamental shift in the Fed’s rhetoric or a clear easing of political risks.
In conclusion, the U.S. dollar currently stands at a sensitive crossroads, but the balance of risks still tilts against it. The rebound from a four-year low may create a misleading impression of strength; however, economic and monetary fundamentals—supported by technical signals—suggest that pressure is likely to persist in the months ahead. As such, I expect any upside to remain limited and temporary, while the broader trend for the Dollar Index remains biased toward further weakness unless game-changing surprises emerge.