The US Dollar Index falls below the 98 level: weak economic data outweighs geopolitical premium

Source: BlockMedia Original Title: [Forex] Dollar Index Breaks Below 98… ISM Manufacturing Shock More Intense Than Venezuela Variable Original Link: The US dollar has turned weaker after geopolitical risks eased. The dollar index(DXY) initially rose to 98.80 in the early trading session, hitting a nearly 4-week high, then retreated to 97.88, breaking below the 98 level since December.

Market Turning Point

The US dollar benefited early in the session due to tense political developments in Venezuela, with geopolitical risks boosting safe-haven demand. However, as the market digested this event, weak US economic data became the dominant factor. The US Institute for Supply Management(ISM) released its manufacturing Purchasing Managers’ Index(PMI), which experienced the largest decline since 2024, with new orders decreasing and production costs rising, putting further pressure on the manufacturing sector outlook.

Shift in Policy Expectations

Market focus has shifted from geopolitical risks to US economic data and future monetary policy directions. Market analysts note that employment data released later this week will be decisive for the path of monetary policy.

The current futures market has already priced in two rate cuts this year, despite the Federal Reserve maintaining its stance of holding interest rates steady. The Trump administration is about to announce a new Federal Reserve chair candidate, whose statements about adopting a “lower interest rate” policy have further reinforced market expectations of rate cuts, adding pressure on the dollar.

Major Currency Performance Against USD

The US dollar against the Swiss franc fell 0.16%(USDCHF 0.794), against the Japanese yen fell 0.44%(USD/JPY 156.655), against the euro rose 0.23%(1.1694 USD), and the Australian dollar remained relatively strong, rising 0.36%.

Outlook

In the short term, the direction of the dollar index depends on key economic indicators released later this week, such as employment data and consumer price index(CPI). If these data fail to confirm a US economic recovery, the dollar may face further downside pressure. If employment and consumer data remain resilient, the Federal Reserve may continue its current interest rate policy; otherwise, market expectations for rate cuts will be further reinforced.