Dollar Index: Cautious Rebound Capped Near 100 – Scotiabank

The US Dollar Index is staging a cautious rebound early this week following last week's notable decline. Scotiabank strategists Shaun Osborne and Eric Theoret note that markets opened the new week in a defensive posture, with the dollar slightly firmer while equities traded defensively and Treasuries strengthened. At the time of writing, the Dollar Index is trading near 99.00, indicating limited rebound momentum, with the 100 round figure acting as near-term resistance.

**Rebound Limited by Unclear Policy Outlook**

The dollar's modest recovery lacks solid fundamental support. Last week, the Federal Reserve held interest rates steady at its latest meeting, but its policy stance was interpreted by markets as ambiguous and leaning dovish, which intensified selling pressure on the dollar. Although Fed Chair Powell continues to downplay forward guidance, hoping markets will refocus on economic data, skepticism persists regarding the central bank's firm commitment to fighting inflation. This uncertainty in the policy outlook constrains the Dollar Index's rebound space from near multi-year lows.

**Key Level Faces Bull-Bear Battle**

From a technical perspective, after the Dollar Index broke below the 100 threshold, that level has now turned into resistance. Scotiabank previously held the view that the dollar's recent upward momentum was fading and facing correction pressure. Currently, markets are searching for new direction. On one hand, resilience in US domestic demand provides some underlying support for the dollar; on the other hand, expectations of a Fed policy shift and strength in major non-USD currencies such as the yen continue to weigh on the dollar. The battle between bulls and bears below the 100 psychological level will determine the Dollar Index's near-term trajectory.