United States Dollar Index slips as US-Iran hopes cap safe-haven bid

The US Dollar Index (DXY) experienced a decline for the third consecutive day, trading near 101.70 during Asian hours on Friday. This decline occurred as traders hoped for US-led diplomatic peace talks between the United States and Iran. The easing Middle East tensions have helped offset concerns related to oil supply and inflation, reducing expectations of a Federal Reserve (Fed) rate hike at its upcoming December meeting.

The CME FedWatch Tool indicates a nearly 75% probability of a 25-basis-point rate increase, down from 84.2% the previous day. US Vice President JD Vance reached out to Iran's Secretary of Iran's Supreme National Security Council, Mohsen Rezaei, to restart peace talks. US President Donald Trump approved Vance's diplomatic outreach, emphasizing Iran's need for medical supplies and other essential resources.

Despite these developments, recent US economic data indicates a resilient economy and a higher chance of Fed rate hikes. Preliminary Gross Domestic Product growth came in at 3.4% year-over-year, surpassing expectations. The Fed's preferred inflation metric, the Core PCE Price Index, rose by 3.1% year-over-year, matching expectations.

Initial jobless claims also dipped, reinforcing signs of a robust economy. In the daily chart, the Dollar Index Spot trades at 101.70, remaining above the 50-day Exponential Moving Average (EMA) but constrained by the nine-day EMA, resulting in a neutral near-term outlook. The 14-day Relative Strength Index (RSI) is at 51.47, suggesting consolidative momentum rather than a clear trend, while the FXS Fed Sentiment Index at 141.89 points to heightened policy-related uncertainty that could hinder sustained trending moves.

Immediate resistance lies at the 9-day EMA at 101.93, with a decisive break above this barrier potentially leading to a retest of recent highs. Conversely, initial support is at the 50-day EMA at 101.21, and a daily close below this level could shift the bias back toward a more bearish stance as the index slips beneath its medium-term trend base.