Brown Brothers Harriman’s Elias Haddad (BBH) reports that the US Dollar Index (DXY) is anchored within a 96.00–100.00 range, primarily due to interest rate differentials between the US and other major economies [1]. Despite recent optimism regarding a ceasefire, concerns about compliance have caused that sentiment to fade, and the DXY rebounded after testing its 200-day moving average, coinciding with a stall in equity and bond market rallies [1]. Brent crude oil prices have risen 8% after dropping to a one-month low at $90.40 per barrel, reflecting ongoing volatility in energy markets [1].
Haddad maintains a structurally bearish outlook on the US Dollar, citing fading confidence in US trade and security policy, worsening fiscal credibility, and the politicization of the Federal Reserve as key factors [1]. The upcoming February US Personal Consumption Expenditures Price Index (PCE) data is expected to show headline PCE at 2.8% year-over-year for a second consecutive month, core PCE dipping 0.1 percentage points to 3.0% year-over-year, and real personal spending rising by 0.2% month-over-month versus 0.1% in January [1]. These figures are unlikely to significantly alter market expectations for the Fed funds rate, which currently imply nearly even odds of a 25 basis point cut over the next twelve months [1].
The FOMC’s March 17-18 meeting minutes highlighted two-sided policy risks stemming from the ongoing conflict in the Middle East. "Most" participants expressed concerns that a protracted war could necessitate additional rate cuts to support the labor market, while "many" favored rate increases to bring inflation down to the 2% target [1]. BBH expects the Fed to deliver one 25 basis point cut by year-end, consistent with the FOMC’s projections, provided the energy shock continues to fade [1].
Overall, the US Dollar Index remains range-bound, with market participants closely watching inflation and spending data, as well as geopolitical developments, for signals on future Fed policy moves [1].
CONCLUSION
The US Dollar Index is expected to stay within its current range as interest rate differentials and cautious Fed policy outlook dominate market sentiment. With only one 25 basis point cut anticipated by year-end and inflation data unlikely to shift expectations, investors remain focused on geopolitical risks and energy market volatility. The market takeaway is a cautious, structurally bearish outlook for the USD, pending further developments.