The US Dollar Missed the Boat!U.S. Dollar Currency IndexTVC:DXYSwissquoteThe US dollar had every reason to appreciate in the FX market amid geopolitical events in the Middle East. But after an initial rise up to March 20, it quickly resumed its downward path and showed no technical sign of a bullish reversal. Why is it so weak even in the current environment of systemic geopolitical risk, and while the market does not expect any Fed rate cuts for a long time? The US dollar had all the cards in hand to strengthen in recent weeks. In a context of geopolitical tensions in the Middle East and a resurgence of inflation in the United States, the greenback should have fully played its safe-haven role. Especially since the market now expects no rate cuts from the Federal Reserve before the end of 2027, a factor traditionally supportive of the currency. And yet, after an initial rise up to March 20, the dollar quickly erased its gains, returning close to its starting point. This lack of bullish reaction, despite an apparently supportive environment, is a strong signal: something deeper is weighing on the US currency. In reality, several macroeconomic factors are offsetting this theoretical support. The market now anticipates a slowdown in the US economy, with a possible rise in unemployment and a fading growth cycle. Moreover, underlying disinflation is continuing, reducing pressure on the Fed to maintain a restrictive policy. Even if headline inflation rises due to oil, this is so-called “low-quality” inflation, driven by supply, and does not sustainably support the currency. In this context, real rate expectations are declining, mechanically weakening the dollar in the foreign exchange market. The chart below outlines the main fundamental factors weighing on the dollar and neutralizing its safe-haven role in the face of geopolitical risk. This is compounded by a major shift in monetary policy. The market believes that the peak in interest rates has now been reached, bringing an end to the main structural driver of the dollar’s rise in recent years. The prospect of a more accommodative Fed, embodied by the arrival of Kevin Warsh at the head of the Fed, reinforces this dynamic. At the same time, US public finances are raising increasing concerns. The surge in debt and the scale of the budget deficit raise long-term sustainability issues, weighing on the dollar’s credibility. This situation implies a growing need for external financing, making the United States dependent on foreign capital. Finally, international flows and structural dynamics play a key role in this persistent weakness. There is a rotation of capital toward other regions, particularly Europe and emerging markets, considered more attractive in terms of valuation. Central banks are also diversifying their reserves, gradually reducing their dependence on the dollar. This phenomenon is part of a broader trend of de-dollarization, notably driven by China and the BRICS countries. In this context, even geopolitical risk is no longer enough to sustainably support the greenback. From a technical analysis perspective, despite bullish momentum divergences on the weekly timeframe, the US dollar has not confirmed a bullish reversal signal similar to spring 2018 and autumn 2021. The inability of the US dollar (DXY) to break above the major resistance at 101/102 keeps it in a bearish technical configuration in place since the end of 2022. The continuation of the trend this year will depend on the decisions made by the Federal Reserve in the coming weeks. The chart below shows weekly candlesticks of the US dollar against a basket of major currencies (the DXY). The major resistance at 101/102 has not been broken. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. 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