Dollar Index: Soft Data, Rangebound Trading – DBS

The dollar index's recent mild rebound stalled just above the 99 handle, then retreated again, extending the rangebound pattern seen over the past few months. DBS Group Research economist Philip Wee noted that this move is linked to the dollar selloff triggered by higher long-term U.S. Treasury yields last week, with the DXY having slipped back from its rebound peak into a narrow 98.5–99.0 trading band.

**Technical Picture: Rangebound**

From a technical standpoint, the dollar index has been consolidating sideways within a broad 96.50–100.30 range since June 2025. DBS analysts suggest this could represent a base-building phase following the sharp correction in the first half of the year. Although brief dips have occurred, the index has consistently found support above its 50-day and 100-day moving averages, reinforcing the stability of this range. A decisive break above the key resistance at 100.26 could open the door for further upside.

**Fundamentals: Supportive Factors Fading**

However, the fundamental factors underpinning the dollar are beginning to show signs of erosion. DBS observes that heading into the second quarter of 2026, improved growth prospects in the euro area and relatively lagging U.S. equity performance have started to undermine the dollar's relative advantage. In addition, the market has interpreted the Federal Reserve's leadership transition as a dovish shift, contrary to earlier expectations. DBS therefore expects the dollar to soften moderately in Q2, a view consistent with the DXY's decline from 100 to 98 at the start of the quarter.

**Divergence Among Major Economies Supports the Dollar**

That said, the relative resilience of the U.S. economy compared with other major economies continues to provide key support for the dollar. DBS highlights that the euro area, given its long-standing reliance on energy imports, faces a significantly higher risk of stagflation than the United States. Meanwhile, the Bank of Japan has cut its FY2026 growth forecast due to weak domestic demand. This cyclical fragility suggests the dollar is still likely to find support in the third quarter. The market's repricing of expectations that the Fed will refrain from further easing, along with the relative strength of the U.S. economy, remains the core variable shaping the dollar's trajectory going forward.