Markets are reacting to a mix of calming geopolitical tensions and uncertain economic signals from the US, leading to renewed pressure on the dollar. As risk appetite improves and doubts grow around the Fed’s next move, investors are rebalancing positions and watching upcoming data for clearer direction.

Ceasefire lifts risk appetite

The US dollar continued to lose ground on Wednesday, weighed down by improved market sentiment following a tentative ceasefire between Iran and Israel.

The fragile truce, brokered earlier this week by US President Donald Trump, temporarily paused nearly 12 days of air strikes, prompting investors to shift towards riskier assets.

This risk-on mood has reduced demand for safe havens like the dollar, even as uncertainty lingers over the long-term stability of the region.

Data disappoints, rate bets grow

Despite the pause in geopolitical tensions, the US economic outlook remains murky. During his semi-annual testimony to Congress, Federal Reserve Chair Jerome Powell maintained a cautious tone, with no strong indication that rate cuts are imminent.

Nevertheless, markets are moving ahead of the Fed. The CME FedWatch Tool now shows an 18% chance of a rate cut in July, with nearly 60 basis points of easing expected by December.

This shift is driven in part by declining consumer confidence—June’s data revealed an unexpected dip as more Americans expressed concern about job availability.

Bond markets are reacting accordingly: the two-year Treasury yield fell to a 1.5-month low of 3.7870%, while the 10-year yield hovered around 4.3043%, reflecting growing expectations of policy easing.

Technical analysis: Dollar extends bearish trend

From a technical perspective, the US dollar remains on the back foot, closing at 97.43—well below the previous high of 98.99.

Charts continue to signal a strong downward trend, with the price unable to reclaim the 97.70 resistance zone.

Picture: Bearish momentum dominates as the dollar hovers near 97.30 lows, as seen on the VT Markets app.

The MACD indicator remains firmly in negative territory, and downward-sloping moving averages point to persistent bearish momentum.

The intraday low of 97.28 now marks immediate support. However, selling pressure remains pronounced, and unless key economic indicators begin to recover, the dollar could face further declines.

If upcoming US data continues to disappoint and inflation moderates—even with tariff-related pressures—the Federal Reserve may consider rate cuts as early as Q3.

Such a move would likely increase downward pressure on the greenback, especially against the euro and higher-risk currencies like the Australian dollar.

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