Dollar Index Weakens as Fiscal Uncertainty Weighs on Investor Confidence

Key Takeaways:

*US credit outlook pressures the dollar amid rising debt concerns.

*Dollar Index (DXY) nears oversold zone; key support seen at 98.90.

Fundamental Analysis

The US dollar came under renewed pressure on Tuesday as concerns over the country’s fiscal sustainability overshadowed investor sentiment. The Dollar Index (DXY), which tracks the greenback against six major peers, extended its losses after Moody’s downgraded US sovereign credit ratings, citing unsustainable debt dynamics and growing deficits.

Sentiment was further dampened by political gridlock surrounding the controversial tax and spending bill proposed by former President Donald Trump. The bill narrowly cleared the House of Representatives by a single vote and now heads to the Senate, where fierce debate is expected. While Republicans maintain a slim majority, analysts remain concerned about the long-term implications of the proposed $3.8 trillion addition to the national debt, which currently stands at $36.2 trillion.

The rising fiscal burden has already driven long-term Treasury yields higher, reflecting market anxiety over future debt servicing costs. Analysts warn that continued fiscal expansion without credible deficit reduction plans could undermine the dollar’s status as a safe-haven currency, especially amid rising global alternatives.

Technical Analysis – Dollar Index

DOLLAR_INDEX, 4-Hour Chart: 

The DXY is now trading near its immediate support at 98.90. Momentum indicators signal further downside risk, with MACD showing strengthening bearish momentum and RSI dipping to 26, indicating deeply oversold conditions.

A clear break below 98.90 could open the door to a test of the 98.00 level. However, oversold signals could invite near-term profit-taking or a technical rebound.
Resistance levels: 100.30, 101.90
Support levels: 98.90, 98.00