The is trading around 101.50, close to its recent high near 101.80 and approaching the important resistance area around 102. The current movement represents a recovery from the selloff the dollar experienced during 2025, but it remains inside a broader price range rather than confirming a complete reversal. A sustained break above 102 would be needed to strengthen the case that the dollar is moving into a broader bullish phase.
The recovery accelerated as moved higher and markets rebuilt expectations of a more hawkish . Renewed military operations between the United States and Iran, combined with disruption risks through the Strait of Hormuz and the Red Sea, pushed above $100 per barrel last week and revived concerns over another energy-led inflation wave.
However, oil prices have since fallen sharply following the pause in military operations and renewed diplomatic efforts. Brent dropped back below $82 per barrel on Tuesday after losing around 17% over three sessions. The decline has reduced some of the immediate inflation pressure, but it does not completely remove the risk, as negotiations remain uncertain and disruptions through key shipping routes have not fully disappeared. A resumption of the conflict could quickly push oil prices higher again, renewing pressure on inflation expectations, Treasury yields and the dollar.
The latest inflation data showed that price pressures moderated before the most recent escalation. Headline CPI slowed to 3.5% year over year in June after 4.2% in May, while core CPI eased to 2.6% from 2.9% the month before. Producer prices also declined 0.3% during the month, reflecting the earlier drop in energy prices. These figures represented disinflation rather than broad deflation and captured economic conditions before oil moved above $100 again after the renewed military operations.
The impact of the latest energy shock has therefore not yet appeared in the official inflation data. Its effect would become clearer in the July figures if energy prices remain elevated. This leaves the Fed making its decision during a period where the latest inflation data have improved, while the forward risks have become more uncertain.
This creates a difficult situation for the ahead of Wednesday’s decision. The central bank has kept its policy rate at 3.50%–3.75% since December. A hold remains the most probable outcome, but markets are assigning around a 30% probability to an immediate 25-basis-point increase, up from less than 20% one week earlier. Markets also continue to price a high probability of a rate increase by September if inflation risks persist.
A surprise rate increase at Wednesday’s meeting would represent the strongest bullish catalyst for the dollar, but it is not the only scenario that could support a break above 102. The Fed could keep rates unchanged while adopting a clearly more hawkish stance, highlighting the risk that renewed energy inflation may spread into broader prices even if June data showed deceleration, keeping a September increase firmly open.
At the same time, the Fed has reasons to wait for further evidence. June nonfarm payroll growth slowed to only 57,000, while employment gains for the previous two months were revised lower by a combined 74,000. The unemployment rate declined to 4.2%, showing that the labour market has not collapsed, but the clear slowdown in job creation limits the Fed’s ability to tighten aggressively without increasing the risks to economic growth.
The Fed is therefore facing two opposite risks. If it waits too long and the energy shock spreads into broader inflation, it could lose further control over price expectations. But if it raises rates while the labour market is already losing momentum, it could deepen the slowdown in the US economy.
Relative central-bank policy also remains supportive of the dollar, although the picture is not completely one-sided. The European Central Bank kept its deposit rate unchanged at 2.25% in July after raising it in June and left the door open to another increase. This limits part of the dollar’s interest-rate advantage against the euro, although Europe’s greater dependence on imported energy leaves its economy more exposed to another oil shock.
The Japanese yen remains a clearer source of support for DXY. has traded near four-decade highs as the wide US-Japan yield differential continues to pressure the currency. Japanese authorities have repeated their willingness to intervene, but previous actions have provided only temporary relief while the Bank of Japan remains cautious about further tightening. Intervention risk is therefore increasing, but the underlying interest-rate differential continues to favour the dollar.
The dollar’s 2025 selloff was not driven only by de-dollarisation. Tariff uncertainty, concerns over US economic policy, large fiscal deficits and questions around policy credibility all contributed to pressure on US assets and the currency. The current recovery is now testing whether stronger cyclical factors—higher yields, renewed inflation risks and safe-haven demand—are sufficient to overcome those broader concerns.
The bullish scenario would require either a surprise rate increase or a strongly hawkish hold, combined with renewed strength in oil prices and another rise in Treasury yields. Under these conditions, a sustained break above 102 would confirm stronger momentum and open the way for a broader extension of the dollar recovery.
The more realistic base scenario is that the Fed keeps rates unchanged but maintains a hawkish position and preserves the possibility of a September increase. If oil remains volatile but below last week’s highs, DXY could continue trading inside the 100.60–102.00 range while markets wait for the next inflation and economic data.
The bearish scenario would emerge if the Fed places greater emphasis on weaker job creation and the recent disinflationary data, while diplomatic progress pushes oil prices and Treasury yields lower. A move below the 100.60–100.70 area would weaken the current recovery, while a break below 100 would place the broader bullish structure under greater pressure.
The Fed decision will be announced on Wednesday, July 29, followed by the June inflation report on Thursday, July 30. The most important part of the decision will not be the rate move alone. Markets will focus on how the Fed describes the renewed energy inflation risk, whether it keeps a September increase open and how much concern it expresses over the weakening labour market. The immediate reaction in Treasury yields and the dollar around the 102 resistance area will provide the clearest indication of whether the current recovery can continue or whether the dollar remains trapped inside its broader range.
