The US Dollar Index (DXY) fell below the key 100.00 level on Tuesday, snapping a five-day winning streak and retreating from a ten-month high of 100.64 earlier in the day, as risk sentiment improved on hopes for de-escalation in the Middle East conflict [1][2][3][4]. At the time of writing, DXY traded near 99.90–100.20, with the move unwinding much of March's rally [1][2][3][4].
The shift in market tone was triggered by reports that Iran is prepared to end the war if certain guarantees are met, and by a Wall Street Journal article stating that former US President Donald Trump told aides he is willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed [1][2][3][4]. However, uncertainty remains high: Iran struck the Kuwait-flagged Al-Salmi off Dubai in a drone attack on Tuesday, and Iran's Foreign Ministry dismissed a US ceasefire proposal as "unrealistic" and "excessive" just a day earlier [2]. Additionally, Iran warned it could target US companies in the region starting April 1, and an Iranian parliamentary committee approved a plan to impose tolls on ships passing through the Strait of Hormuz [4]. US Secretary of Defense Pete Hegseth stated, “the coming days will be decisive” and “there is nothing Iran can do about it” [3].
The improved risk appetite supported risk-sensitive currencies. AUD/USD rebounded to around 0.6885, pausing a five-day losing streak and showing early signs of stabilization, with technical indicators suggesting downside risks are easing [1]. EUR/USD rose to 1.1551, up nearly 0.75% on the day, while NZD/USD edged lower to 0.5710, down 0.15%, as the US Dollar stabilized later in the session [3][4].
On the macroeconomic front, US data was mixed: the Conference Board’s Consumer Confidence Index rose to 91.8 in March, beating the 87.8 consensus, while the Chicago PMI missed at 52.8 versus a 55.0 forecast, and JOLTS job openings came in at 6.88 million against 6.92 million expected [2][4]. In the Eurozone, preliminary inflation figures showed the Harmonized Index of Consumer Prices (HICP) rose by 1.2% MoM in March and 2.5% YoY, above the ECB’s 2% target but below market expectations [3].
Market expectations for central bank policy are shifting. Investors now anticipate the Federal Reserve will keep rates unchanged through most of 2026, and the CME FedWatch tool shows expectations for the Fed to hold rates at 3.50%-3.75% through the year [3][4]. In New Zealand, markets price in roughly three rate hikes for the RBNZ this year, though TD Securities believes this may be excessive [4]. For the ECB, markets are scaling back expectations of an immediate rate hike but still price in around two hikes by year-end if oil prices remain elevated [3].
Technical analysis for DXY suggests the broader uptrend remains intact despite the recent pullback, with support at the 99.50–99.20 area and resistance at 100.50 [2]. For AUD/USD, immediate resistance is at 0.6900, with support at the 100-day SMA around 0.6815 [1].
CONCLUSION
The US Dollar's retreat reflects shifting market sentiment amid hopes for Middle East de-escalation, but persistent geopolitical risks and conflicting signals are keeping volatility elevated. Risk-sensitive currencies like the AUD and EUR have rebounded, while central bank policy expectations are being recalibrated in light of inflation and growth concerns. The market remains highly sensitive to further developments in the region and upcoming economic data.