Dollar: Risk of Hawkish Repricing Rises – Brown Brothers Harriman

The dollar faces a complex long-short tug-of-war. Elias Haddad, an analyst at Brown Brothers Harriman (BBH), notes that while overseas demand remains strong, the market's dovish repricing of the Fed's policy path is becoming a key factor capping the dollar's rebound. EUR/USD is trading at 1.16434, after earlier testing key support at the 200-day moving average; USD/JPY is approaching the psychological 160.00 level, where bulls and bears are fiercely contesting.

**Dovish Expectations Cap Dollar Upside**

Adjustments in market expectations for the timing and scale of Fed rate cuts have directly eroded the dollar's rate advantage. According to BBH, the dovish repricing of the Fed is seen as the main headwind limiting the dollar's rebound. Although the dollar index is near a one-week high, mixed performance across major currency pairs reflects a lack of consensus on the Fed's future policy direction. This uncertainty makes it difficult for the dollar to sustain a trend-like rally, instead facing profit-taking near key technical levels.

**Key Technical Levels Become the Battlefield**

On the technical front, the 200-day moving average for EUR/USD and the 160.00 level for USD/JPY have become the core battlegrounds in the FX market. EUR/USD is currently at 1.16434; whether it holds above or breaks below the 200-day MA will determine the direction of the medium-term trend. USD/JPY is hovering around 160.00; a decisive break above could trigger a fresh leg higher, while a failure could mark a temporary top. Traders are closely watching these technical levels to gauge the dollar's next move.

**Policy Uncertainty Heightens Market Volatility**

Divergence within the Fed over rate cuts, compounded by uncertainty over external nomination processes, has further amplified market volatility. According to related market analysis, if the Fed's stance turns more dovish than expected, the dollar could face a sharper downside correction. However, strong overseas capital inflows continue to provide some support, leaving the market in a choppy "resistance above, support below" range. Investors should remain alert to two-way volatility risks stemming from shifting policy expectations.