“The US dollar exceeded the level of 100 on the DXY index for the first time since May 2025. The conflict between the US and Israel is in its fifth week, the Strait of Hormuz remains effectively blocked, and the price of Brent crude oil exceeded $110 per barrel. At the same time, the Federal Reserve maintains interest rates at 3.50-3.75% and does not anticipate any reductions before the end of 2026” – such key aspects of the dollar valuation are enumerated by Anthony Bull, director of Cambridge Currencies in his analysis.
The DXY index, developed in 1973, currently shows the dollar quotations against the following currencies: EUR, JPY, GBP, CAD, SEK and CHF. Of this, 57 percent weight was given to the euro.
The analysis was carried out on Monday, and on Tuesday the price of Brent dropped below USD 100. per barrel, and the dollar weakened by 0.2%. to euro. But the analysis emphasized repeatedly – the market is currently very volatile. The analysis outlines trends rather than momentary changes.
Reasons for the strength of the dollar
The forecast says that the dollar will probably strengthen in the short term, but as for the whole year, the market expects it to weaken. Currently supported by: blockade of the Strait of Hormuz, high oil prices, demand for a “safe haven”, maintaining Fed interest rates at 3.50-3.75 percent. A change in any of the above elements may undermine support.
“Once geopolitical risks subside and interest rate cuts become closer, most institutional forecasts place the DXY Index in the low to mid 90% range through December 2026.” – we read in the analysis.
Well, before declines occur, analysts see strengthening. According to them, it will take place by mid-year. It is expected to weaken in the second half of the year. “The current level of tensions is geopolitical, not structural – which means changes could come quickly once tensions ease,” it said.
The risk to meeting the forecast would be a ceasefire or reopening of Hormuz, the Fed signaling that it will ease monetary policy, a decline in energy prices (including fuel), and an improvement in risk appetite in the markets.
Two phases
According to the forecast in phase 1 scheduled for the second quarter of this year. there will be strengthening against the euro to USD 1.12. to the pound to $1.30. and against a basket of six currencies to 103%. DXY index. The trend reversal in phase 2 would occur from July and last until December. Between October and December, the dollar is expected to trade in the range of 91-96%. DXY index.
“Staying above 103 [indeksu DXY] would require escalation or a hawkish stance from the Federal Reserve. Without this, gains above 100 points will most likely fizzle out,” the analysis reads.
The analysis points to the difference between the main interest rates of the Fed (3.50-3.75%) and the ECB (2.15%). According to analysts, this difference will be shrinking and this is expected to cause downward pressure on the dollar.
Regarding the strength of the pound sterling, they indicate that it results from the strength of the dollar, so the British currency will reflect movements on the dollar. Moreover, the Bank of England has rates similar to those in the United States (3.75%).
“Good time to buy dollar”
According to the analysis the euro at the end of the year should be around $1.17. That is, as it is now. The euro is vulnerable to electricity prices, oil prices and geopolitical risks. Here, a lot depends on the direction of changes in the ECB's policy compared to what the Fed will do.
According to Cambridge Currencies, now is a good time to buy the dollar, but this moment will end later in the year, i.e. after the peak around mid-year. “The US dollar will be strong in 2026, but is unlikely to maintain this value,” it concluded.
