US Dollar Forecast: DXY Gains as Fed Cut Odds Hold and Currencies Reverse

Author: James Hyerczyk

Published: April 18, 2026

Overview

The U.S. Dollar Index (DXY) experienced a significant selloff due to geopolitical developments in the Strait of Hormuz, where Iran confirmed the waterway was open for commercial shipping. This news led to a decline in the dollar, which fell to its lowest level since late February. However, the dollar rebounded late in the trading session, indicating a potential reversal in market sentiment.

Market Dynamics

Initially, the DXY dropped to 97.632, marking a two-week decline of approximately 2.5%. The early selloff was attributed to falling Treasury yields, which typically correlate with a weaker dollar. The 10-Year U.S. Treasury yield decreased from 4.315% to 4.226% before recovering slightly. Despite this, the dollar's late-session strength suggested a shift in market positioning rather than mere short-covering.

Technical Analysis

From a technical perspective, the DXY's main trend is currently down. However, the closing price reversal at 97.632 may indicate market exhaustion. A move above 98.291 on the following trading day could confirm a counter-trend rally. Key resistance levels include the 200-day moving average at 98.522 and the 50-day moving average at 98.708. If the index falls below 97.496, it could signal further declines.

Fed Policy Outlook

Market expectations regarding Federal Reserve policy played a crucial role in the dollar's performance. Prior to the selloff, traders were pricing in a 26% chance of a rate cut in December. The lack of a significant shift in this outlook contributed to the dollar's late recovery, as traders were reluctant to continue selling aggressively without clearer signals of easing monetary policy.

Currency Movements

The late-session dollar strength was reflected across major currencies, with the euro and yen reversing gains. This broad-based dollar rally indicated a shift in capital flows back into the dollar, driven by ongoing geopolitical uncertainties surrounding the Strait of Hormuz.

Conclusion

The geopolitical situation remains fluid, and while the Strait of Hormuz is currently open, market participants are cautious about the permanence of this development. As long as uncertainty persists, there is a willingness among buyers to step in on dollar dips, suggesting that the DXY may continue to experience volatility in the near term.

Author Background

James Hyerczyk is a seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement.