The U.S. Dollar Index (DXY), which tracks the dollar's value against a basket of currencies, continues to show solid results after a nighttime bounce from the 99.30 level, the lowest since June 5. The intraday rise allowed the index to reach a new daily high of around 99.70 at the start of the European session, though it lacked bullish conviction amid uncertainty over the direction of U.S. monetary policy.

Weak inflation in the U.S. and disappointing consumer spending data released last week have lowered expectations for a rapid rate hike by the Federal Reserve. However, inflation risks related to rising energy prices continue to concern investors and may force the Fed to adopt a more stringent stance. Consequently, the publication of the FOMC meeting minutes on Wednesday will provide additional signals about the future direction of interest rates, which will shape the short-term dynamics of DXY.

Oil prices, yields, and geopolitical tensions keep markets on edge. Yet, the decline in expectations for Fed tightening should keep the dollar within a certain range and maintain support for carry trade operations.

This week, the focus will be on the publication of the FOMC meeting minutes for July. Markets will seek greater clarity on policymakers' views on inflation and interest rates.

The ongoing confrontation between the U.S. and Iran carries a geopolitical risk premium, pushing oil prices to two-week highs and reinforcing the U.S. dollar as a safe-haven asset.

President Trump stated that he is not interested in extending the Memorandum of Understanding with Iran, which expired on Monday. He also reiterated his idea of recognizing the Strait of Hormuz as U.S. territory. He warned Oman that he would act against it if it interfered with the resumption of shipping through this strategically important waterway.

Meanwhile, a high-ranking Iranian official reported that Iran is shifting from a defensive posture to a "completely offensive" position, citing difficulties in negotiations with the U.S. Additionally, an official warned that Iran would conduct "timely and precise" strikes if the U.S. fails to meet the conditions of the ceasefire agreement reached in June. Furthermore, Iran-backed Houthis in Yemen have intensified their actions against Saudi Arabia, raising the risk of a broader regional conflict and confirming the likelihood of further strengthening for the U.S. dollar.

Despite this, it is advisable to wait for a more active continuation of purchases before confidently asserting that the DXY index has bottomed out and is ready for significant recovery.

From a technical perspective, the 100-day simple moving average (SMA) at 99.70 serves as a direct obstacle to reaching the psychologically important mark of 100.00. Breaking above this level will open the way for substantial growth. On the other hand, the nearest support is located near the overnight low at around 99.30, followed by the 200-day SMA at around 99.15. Closing a daily candle below this level will be seen as a new bearish signal and make the DXY index vulnerable to further declines. Oscillators are negative, and bears hold the advantage.

The table below shows the percentage change of the U.S. dollar against major currencies on Tuesday. The U.S. dollar demonstrated the most strength against the New Zealand dollar, reflecting positive sentiment amid current economic and geopolitical factors.