The Dollar Index falls through a war and a hawkish repricing

The US Dollar Index (DXY) experienced a decline on Monday, falling just beneath 99.50 and 0.26% lower. The currency rallied due to several factors on that session, including American forces striking Iranian launchers on Larak Island, crude oil prices surging by more than 2%, rising yields across the curve, and a near 60% probability of a Federal Reserve (Fed) increase in September.

The Dollar traded beneath its own 200-day Exponential Moving Average (EMA) on Monday, which it had briefly poked above earlier in the session. The repricing following the Jackson Hole keynote on Friday was not an American event, highlighting the global impact of the economic situation. Interest rates in the euro area, Japan, Germany, and France reached their highest levels in years, impacting their respective central banks' decisions.

The Dollar Index is heavily influenced by the Euro and Yen, accounting for nearly three-quarters of its value. With the European Central Bank expected to raise rates before the Fed on September 9-10, the Dollar faces a headwind as a premium for its policy turn. The Federal Reserve's decision on September 16 carries the least conviction among the three major central banks.

The lack of a genuine American upside surprise and the dominance of hawkish expectations from other central banks are bearing down on the Dollar, making it bearish in the current market conditions.