Geopolitical risks reignite the risk aversion wave, consumer confidence plummets but cannot stop the US dollar

Huitong Finance APP News - On Friday (March 27), during the New York session, the US Dollar Index experienced slight fluctuations and strengthened, maintaining around the 100.0664 level, up 0.14% from yesterday’s closing. Although the cumulative increase over three consecutive days has been limited, the overall performance in March has recorded nearly a 2% rise, marking the strongest monthly performance in the past eight months.

Despite Trump announcing a 10-day extension until April 6 for strikes on Iran’s energy facilities, Iranian officials continue to deny any substantive negotiation progress, and concerns about prolonged geopolitical conflicts remain. Safe-haven funds continue to flow into the US dollar, while high oil prices are raising inflation expectations, with both factors jointly supporting the resilience of the dollar.

Fundamental Analysis

Geopolitical Risks: On Thursday, Trump announced a 10-day extension for the pause in strikes on energy facilities at Iran’s request, claiming that “negotiations are progressing very smoothly,” but Iranian officials clearly stated that they have rejected the US’s 15-point ceasefire proposal and denied any substantive dialogue is occurring. Concerns about potential escalation of conflicts before the weekend or continued disruptions in the Strait of Hormuz have not alleviated, causing crude oil prices to remain firm and further elevating global inflation expectations. The US dollar, as the world’s primary safe-haven asset, naturally benefits from this “risk premium + high interest rate” combination.

Federal Reserve’s Policy Path Expectations Remain Hawkish: The persistent high oil prices combined with inflationary pressures have led the market to significantly reduce expectations for rate cuts by the Federal Reserve this year. Signals released after the March Federal Reserve meeting indicate that decision-makers remain cautious about the path of inflation decline, and the high interest rate environment provides long-term structural support for the dollar. Even if short-term geopolitical factors ease, the dollar is unlikely to drop quickly.

Today’s Key Economic Data Impact is Neutral to Weak: The final value of the University of Michigan’s Consumer Sentiment Index for March recorded 53.3, significantly revised down from the initial value of 55.5 and below February’s final value of 56.6, marking a new low since the end of 2025. Consumer pessimism regarding the economic outlook has intensified, which usually negatively impacts the dollar; however, in a market environment dominated by geopolitical risks, the safe-haven logic completely overshadows the impact of economic data, allowing the dollar to consolidate its gains.

The Linkage Effect Between Crude Oil and Inflation is Significant: Crude oil prices remain high due to uncertainties in the Middle East, further solidifying the dollar’s role as an inflation hedge. Every increase in oil prices indirectly reinforces the necessity for the Federal Reserve to maintain restrictive policies, providing additional support for the dollar.

Mainstream Views

Barchart analysts clearly point out that although Trump announced a 10-day extension for strikes on Iran’s energy facilities, Iranian officials promptly issued a hardline statement denying any substantive negotiations are ongoing, leading to a rapid decline in market optimism regarding ceasefire prospects. As a result, the dollar received ongoing safe-haven buying support, while US stocks generally weakened, and oil prices surged due to weekend uncertainties, further elevating inflation expectations. In the short term, DXY is expected to fluctuate around the 100 mark, but as long as geopolitical risks do not materially ease, the dollar’s monthly strong trend will continue.

Reuters cited several diplomatic sources from Washington and Tehran stating that Trump’s extension of the deadline by 10 days is widely interpreted by the market as a “temporary stalling tactic.” Iran has formally rejected this proposal in writing and presented its own five non-negotiable prerequisites, indicating “there are currently no substantive negotiations.” This “inconsistent messaging” signals investors to remain highly cautious before the weekend, with safe-haven sentiment continuing to ferment, directly pushing the dollar index’s resilience during the early New York session. Reuters analysts believe that the simultaneous rise in oil prices further strengthens the dollar’s inflation-hedging attributes.

The Trading Economics forex team believes that the DXY is currently fluctuating slightly around 100, primarily driven by the uncertainty of the Middle East conflict and the linkage effect of crude oil prices. The cumulative appreciation in March has reached 1.78%, far exceeding previous market expectations; analysts emphasize that if no breakthrough in Iran negotiations occurs this weekend, the dollar is likely to continue solidifying its best monthly performance, eyeing the 100.50 area as the next target. The report also warns that any military or diplomatic sudden news could trigger severe volatility over the weekend.

Investing experts note that the dollar has strengthened for three consecutive days, with geopolitical risks completely dominating the current market trends. The 100 psychological level has become the focal point of contention between bulls and bears. If the dollar effectively stands above 100 with increased trading volume, the technical outlook will further open up upside potential; conversely, if unexpected progress occurs in Iran negotiations before the weekend, the safe-haven premium may quickly decline. Experts recommend that investors maintain flexible positions in the current environment, closely monitoring real-time changes in oil prices and geopolitical news.

Technical Analysis

(Dollar Index Daily Chart Source: Easy Forex)

Moving Average System: The short-term MAs (5/10/20) show a clear bullish arrangement, with prices stabilizing above 99.80, indicating that the short-term trend remains strong; the medium to long-term MAs (50/200) maintain a golden cross state, supporting the dollar’s continued test of the 100 integer level.

RSI(14) and MACD: The RSI is currently around 65-67, indicating strength but not yet entering an extreme overbought zone. The MACD histogram continues to expand, with momentum indicators still supporting the bulls; caution is advised if the RSI quickly pulls back below 60, as this may lead to short-term profit-taking.

Key Levels and Patterns: Key resistance to watch above for the day is 100.15-100.40 (recent highs and psychological levels), while support is at 99.80 and 99.60.

If the dollar effectively stands above 100 with increased trading volume, it will open further upward space to the 101.50 area; conversely, if it falls below 99.80, it may retrace to test the 98.80-99.00 range.

Financial Calendar

Today’s Main Events:

10:00 EDT University of Michigan March Consumer Sentiment Index Final Value: Actual 53.3 (Expected 55.5, Previous 56.6) - Data significantly below expectations but has been digested by geopolitical factors.

US Baker Hughes Oil Rig Count (Weekly Report, Oil Market Indicator).

Key Reminders

Geopolitical news sensitivity is extremely high before the weekend; any sudden news regarding Iran negotiations or military actions could trigger severe volatility.

Next week, focus on the US Non-Farm Payroll Report, more Federal Reserve officials’ speeches, and crude oil inventory data, and investors are advised to maintain position flexibility.

Frequently Asked Questions

Q1: Why can the dollar still strengthen after Trump extends the deadline?

A: The core issue is market skepticism about “substantive progress.” Although Trump announced a 10-day pause and claimed “negotiations are progressing smoothly,” Iranian officials repeatedly deny any substantive dialogue and reject the US’s 15-point proposal. This “inconsistent messaging” signals to investors that the risk of prolonged conflict remains, leading safe-haven funds to continue flowing into the dollar rather than exiting quickly.

Q2: How significant is the impact of the Iranian situation on the dollar?

A: The impact is direct and lasting. Uncertainty from the Middle East conflict directly drives up oil prices, in turn raising global inflation expectations, while also reducing the likelihood of the Federal Reserve cutting rates quickly. As the world’s reserve currency and traditional safe-haven asset, the dollar gains a natural premium in the “geopolitical risk + high interest rate” dual environment. Even if consumer confidence data weakens, the safe-haven logic completely outweighs the fundamental bearish factors.

Q3: What does the significant revision of the Michigan Consumer Sentiment Index to 53.3 mean?

A: This reflects a significant increase in American consumers’ pessimism regarding the economic outlook, marking a recent low. Typically, such data would negatively impact the dollar and risk assets. However, in the current market environment, the geopolitical risk premium dominates, and safe-haven demand overshadows domestic economic concerns, thus the dollar did not retreat but instead seized the opportunity to consolidate gains.

Q4: How does the Federal Reserve’s recent policy stance affect the dollar?

A: In March, the Federal Reserve maintained interest rates and emphasized inflation risks, leading the market to significantly lower the expectations for rate cuts this year. The high interest rate environment itself is a long-term supporting factor for the dollar, compounded by inflationary pressures from rising oil prices, making the probability of a “late rate cut” by the Federal Reserve even higher, providing a solid fundamental backing for the dollar.

Q5: What are the main risks and opportunities the dollar faces over the weekend and next week?

A: The highest uncertainty regarding geopolitical news before the weekend means that if unexpected breakthroughs occur in Iran negotiations, the safe-haven premium may quickly decline, putting downward pressure on the dollar; conversely, if signs of conflict escalate or oil prices continue to rise, the dollar will benefit further. Next week’s Non-Farm Payroll Report will be key; if the data is strong and inflation pressures do not diminish, the dollar’s structural strong trend is likely to continue.

(Edited by: Wang Zhiqiang HF013)

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