The US dollar index is expected to rise for three consecutive days, with dual support from the Middle East situation and hawkish signals from the Federal Reserve

On Wednesday (June 3rd), the US dollar index continued its strong momentum driven by safe haven sentiment, testing the high point of 99.40 in the week. The US dollar index has risen for the past two trading days.

The escalation of tensions in the Middle East has cast a shadow over the fragile prospects of the peace process, coupled with strong US economic data, providing support for the US dollar.

Safe haven demand: Middle East conflict boosts US dollar

On Wednesday, the uncertainty of the Middle East situation kept investors cautious.

The new round of hostile actions between the United States and Iran has added pressure to the fragile ceasefire agreement and pushed up oil prices. The US authorities insist that the ceasefire is still in effect, but Iran announced on Monday that peace talks have been suspended due to the US Israel violation of the ceasefire agreement.

In terms of geopolitical dynamics, the military standoff between the United States and Iran escalated sharply from late night on June 2nd to early morning on June 3rd. The Iranian Revolutionary Guard Corps claimed to have hit the headquarters of the US Fifth Fleet in Bahrain with missiles and drones, while the US Central Command stated that all missiles launched by Iran were intercepted or crashed.

The conflict has spread to the Gulf region, with Kuwait sounding air raid sirens nationwide, Bahrain sounding sirens, and multiple airports suspending operations.

In terms of negotiations,Industrial DevelopmentBoth the US and Iran hold their own views, with Iran stating that information exchange has been suspended for several days, while Trump quickly denied it, putting the market in a dilemma of mixed "true and false news".

From the perspective of transmission logic, there are two main ways for risk aversion to push up the US dollar: first, geopolitical risks trigger capital flows to safe assets such as US treasury bond bonds; The second reason is that the rise in oil prices strengthens the reason for the Federal Reserve to maintain high interest rates and enhances the advantage of the US dollar's interest rate spread. As a net exporter of energy, the rise in energy prices in the United States can improve its trade conditions, which is more favorable for the US dollar. However, after the temporary ceasefire between the US and Iran in April, risk appetite has increased, which means that whether the US dollar can continue to strengthen will depend on whether the situation in the Middle East can maintain sufficient tension.

Economic data: Labor market and manufacturing industry both strengthen

At the same time, US economic data continues to demonstrate resilience, providing additional support for the US dollar.

Job vacancies in JOLTS rose to the highest level in nearly two years in April, and the ISM Manufacturing Purchasing Managers' Index in May also showed strong economic activity. These data reinforce market expectations that if inflationary pressures remain high, the Federal Reserve may raise interest rates later this year.

Federal Reserve officials have recently released hawkish signals frequently. Minneapolis Fed President Kashkari stated that the inflation rate has been above the 2% target for over five consecutive years, and reducing inflation remains the top priority. The global "inflation shock wave" caused by the Middle East conflict may continue to exist.

Former "dovish" Gulsby also pointed out that energy inflation related to the Middle East conflict will last longer than expected, and the main problem currently facing the Federal Reserve is likely to be high inflation levels.

Federal Reserve Governor Cook has made it clear that she is prepared to raise interest rates if the inflation cooling process does not proceed as scheduled.

Yardeni Research founder Ed Yardeni has warned that the Federal Reserve should raise interest rates in July, far earlier than the market's general expectation of "at the earliest by the end of 2026".

Technical analysis of the US dollar index

The daily fluctuation of the US dollar index tends to be strong, and currently there is no index running around 99.30 to stand above the moving averages of each cycle. Before short-term pressure, it was above 99.55, with a medium-term resistance of 100.64 above. The support below relies on MA20, MA50, and the previous low of 97.63.

(Dollar index daily chart, source: Internet)

MACD remains above the zero axis, DIFF is above DEA, and bullish momentum continues slightly; RSI is at 56.89, above the 50 center, with a bullish advantage but has not yet entered overbought. The moving average system is in a bullish pattern, with the center of gravity steadily rising in the medium term and a slight consolidation before short-term obstruction. The market is supported by the moving average and tends to fluctuate strongly, with a focus on the effectiveness of the 99.55 pressure breakthrough and 99 support.

On June 3rd at 15:26 Beijing time, the US dollar index was at 99.33.