US Dollar Oscillates at High Levels: Oil Price Surge and Cautious Sentiment Ahead of Fed Meeting Intertwine

Reuters Finance APP News — On Monday (March 16), during the U.S. trading session, the U.S. dollar index declined after the U.S. stock market opened, falling from an intraday high of about 100.47 to around 99.68, a drop of approximately 0.68%. The daily fluctuation range was roughly between 99.81 and 100.47.

From the market performance, the dollar briefly reached a high near 100.40 in the early session but then quickly retreated and broke below the 100 level. However, the overall decline did not further expand, and the index remains oscillating within the high-range zone formed over the past few months. Structurally, this looks more like a phase of consolidation after a continuous rally rather than a trend reversal.

Recently, the dollar has been strengthening, driven partly by escalating geopolitical tensions globally and partly by the relative resilience of the U.S. economy and rate hike expectations. However, as key events approach this week, some funds are taking profits temporarily, causing a phase of “pause” in the dollar’s rally.

Fundamentals: Geopolitical Risks and Policy Expectations Create a Dual Battle

The core drivers in the forex market still focus on two factors: Middle East tensions and Federal Reserve policy outlook.

First, the situation in the Middle East continues to ferment. Military actions by the U.S. and Israel against Iran and subsequent conflicts have temporarily heightened risk aversion. Traditionally, geopolitical risks tend to favor the dollar and other safe-haven assets, but current market reactions are relatively complex. On one hand, the conflict pushes energy prices higher and increases global economic uncertainty; on the other hand, investors are reassessing the inflation impact brought by these developments.

International oil prices have recently risen significantly. Rising energy prices often exacerbate global inflation pressures and impact economies heavily dependent on energy imports (such as Europe and Japan). Structurally, the U.S., as a major energy producer, is less affected by oil price shocks, which supports the dollar’s relative strength. In the short term, however, markets are more focused on digesting the macroeconomic effects of rising oil prices rather than purely seeking dollar safe-haven.

Second, market focus is gradually shifting to the upcoming Federal Reserve rate decision this week. Widespread expectations suggest that the Fed will keep rates unchanged at this meeting, with the rate cut outlook for the year being reduced to about one cut. This indicates that monetary policy in the near term will not provide new upward momentum for the dollar. In the absence of new policy catalysts, some funds are reducing positions ahead of the meeting, leading to technical pullbacks in the dollar.

Institutional Views: Dollar Correction More a Pause in the Uptrend

Several institutions and media outlets have made similar assessments of the current dollar trend.

Investing.com recently reported that the dollar’s previous rally is temporarily easing. With ongoing conflicts in Iran and cautious investor sentiment towards Fed policy, the dollar against G10 currencies has generally retreated, but the overall trend remains intact.

The Wall Street Journal believes that although the dollar index has pulled back, the decline may be limited. The market continues to closely watch energy prices and potential changes in Japan’s trade balance, which could further influence the relative performance of major currencies.

Yahoo Finance also noted that the dollar weakened in early Monday trading mainly because investors shifted their focus to this week’s Fed meeting. Geopolitical risks and rate expectations remain key variables driving short-term market volatility.

Some analysts share similar views. Forex strategist Marc Chandler stated that the Middle East conflict remains a significant background factor, but the dollar’s retreat against G10 currencies, coupled with rising oil prices, increases market uncertainty. Oppenheimer analysts expect the Fed to hold rates steady this week, implying a lack of new catalysts for the dollar’s short-term rally, with market sentiment leaning towards caution.

Technical Outlook: Short-term Correction Signals Emerge

(Daily chart of the dollar index Source: Easy Forex)

From a technical perspective, the short-term trend of the dollar index shows signs of correction.

Currently, the overall technical signals for the dollar index lean towards a “sell.” On 5-minute, 15-minute, and hourly charts, short-term moving averages are showing a bearish alignment, reflecting short-term profit-taking.

Meanwhile, the daily and weekly structures remain at relatively high levels, but some momentum indicators are beginning to diverge. For example, MACD momentum is weakening, and RSI is gradually retreating from overbought levels, which typically indicates that upward momentum is slowing and the market may enter a consolidation phase.

Key support levels are around 99.50 to 99.65. If this zone is broken effectively, the dollar could further decline to test the next support near 98.80. Conversely, if the index re-establishes above 100, it may resume its previous upward trend and challenge recent highs again.

Overall Outlook: Mainly Consolidation in the Short Term, Medium-term Support Remains

Based on fundamental and technical factors, the current pullback in the dollar appears more like a phase of high-level oscillation rather than a trend weakening.

On one hand, geopolitical risks persist, and uncertainties in the Middle East could periodically boost safe-haven demand; on the other hand, the U.S. economy remains relatively resilient, and the Fed’s policy outlook is relatively clear, which limits downside potential for the dollar.

In this context, the market is more likely to remain cautious in the short term, awaiting new policy signals from this week’s Fed meeting. If the policy stance remains hawkish or economic prospects stay optimistic, the dollar could regain strength.

Overall, the dollar index is likely to fluctuate between approximately 99.50 and 100.50 in the near term. Investors should focus on two main factors: first, the policy signals from the Fed’s statement and Chair’s speech; second, further developments in oil prices and Middle East tensions. These will determine the dollar’s next direction.