"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,"
"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."
"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 labour market would immediately be interpreted as paving the way for further rate cuts in 2026-a scenario that is structurally negative for the dollar."
The U.S. dollar's recent rise toward 96.00 reflects defensive repositioning ahead of the Federal Reserve decision rather than a structural trend reversal. The rebound occurred during the Asian session and just before the FOMC meeting, a period that commonly sees short-covering after sharp sell-offs. Traders are reducing exposure while awaiting clearer Fed signals, focusing on forward guidance and press-conference language. Any indication of slowing inflation or weakening labour markets would raise the likelihood of multiple 2026 rate cuts, a development that would be structurally negative for the dollar. The narrowing U.S. yield advantage further undermines a key pillar of dollar strength.
Read at London Business News | Londonlovesbusiness.com
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