DXY extends its bearish momentum to 98.70,USDT full form marking the weakest level since late April
Market sentiment improves following suspension of proposed EU tariffs
Upcoming Fed communications and inflation data could determine next directional move
The US currency benchmark continues to face selling pressure as trading volumes return to normal following the long weekend. The suspension of threatened trade measures against European partners has significantly altered market dynamics, with capital flowing toward risk-sensitive assets at the expense of traditional safe havens.
During early Asian session trading, the basket measuring USD strength against six major counterparts touched 98.70 - territory not seen since the April pullback that nearly tested the 97.95 multi-year support level. This downward trajectory reflects broader shifts in capital allocation strategies among institutional participants.
Geopolitical Developments Reshape Currency Flows
The apparent de-escalation in transatlantic trade tensions has removed a significant overhang from global markets. With US-EU commerce representing nearly one-third of worldwide economic activity, the avoidance of reciprocal tariffs prevents what analysts feared could become a perfect storm for growth prospects.
Market participants are also digesting potential modifications to fiscal policy proposals making their way through the legislative process. While details remain scarce, early indications of compromise have eased concerns about the measures' potential inflationary consequences and their secondary effects on monetary policy.
These developments have created ideal conditions for carry trades and risk positioning, explaining the simultaneous pressure on both traditional safe havens and the world's reserve currency. Trading activity may remain subdued until Wall Street returns from the holiday break, with liquidity conditions expected to normalize by midweek.
Technical and Fundamental Crosscurrents
From a chart perspective, the DXY finds itself testing critical support levels that held during previous selloffs. Market technicians note the 98.50-98.70 zone represents make-or-break territory, with a sustained break potentially opening the door for a retest of the April lows.
Fundamental traders await several high-impact events that could determine whether the current risk-on environment persists. The Federal Reserve's meeting minutes will be scrutinized for any hints about the timing of potential policy adjustments, while the PCE inflation gauge remains the central bank's preferred measure of price pressures.
Currency markets typically exhibit heightened sensitivity to interest rate differentials during periods of monetary policy transition. With several major central banks at different stages of their tightening cycles, relative yield expectations continue to drive capital flows across forex markets.
Market participants should monitor whether the current risk appetite proves sustainable or represents temporary positioning ahead of major economic releases. The coming sessions will reveal whether the dollar's weakness reflects a fundamental reassessment or merely temporary portfolio rebalancing.