US Dollar Index: Why Sustainability Above 97 Remains Unclear

The Dollar Index is trapped between cooling inflation and political uncertainty.
Markets are balancing rate-cut expectations against a shifting Fed leadership narrative.
This week’s FOMC minutes and PMI data may decide whether DXY breaks 96.55 or reclaims 98.

The appears to have entered a consolidation and wait-and-see phase in February, with its direction shaped more by news flow than by a classic trend environment. The move that extended toward the 98 threshold at the end of January, driven by Kevin Warsh’s official candidacy narrative, subsequently lost momentum as disinflation signals came to the forefront, and the index closed just below the psychological 97 level. This suggests that the market’s initial reflex to the “hawkish candidate” headline faded quickly; in the short term, pricing has become more data-driven (especially inflation and the yield curve).

Disinflation Signal and Discipline Story: Two Pricing Mechanisms at the Same Time

The main catalyst last week was the January CPI data released on Friday, February 13. The annual inflation rate coming in below expectations generated rapid relief in the bond market and capped DXY’s momentum as 10-year yields pulled back. The market reaction was clear: if cooling inflation gains traction, the Federal Reserve’s could begin to ease sooner, thereby somewhat eroding the dollar’s advantage.

On the other hand, the other side of the equation can be described as the “Warsh paradox”: Warsh’s name is generally associated in the market with a more disciplined stance and high sensitivity to inflation, so the headline itself could generate a medium-term “story premium” for the dollar. In other words, while the data on one side suggests “room for easing,” a possible leadership change keeps expectations of “institutional consistency and a tightening reflex” alive on the other. The DXY’s consolidation in the 96.50–97 range reflects precisely this balance between the two forces: while the data works against the dollar, the narrative has the potential to work in its favor.

Political Background and Fed Independence: Where Does the Risk Premium Go?

A critical component of this process is not only monetary policy expectations but also the institutional risk premium created by political debates over Fed independence. Senator Thom Tillis’s January 11 statement — “I will block Fed appointments until the Justice Department investigations are complete” — goes beyond being a headline in itself and indirectly affects pricing by implying that Warsh’s confirmation process could be prolonged.

The real question is whether the dollar will act as a safe haven when political tensions rise, or whether it will be pressured this time due to institutional risk. In classic risk-off environments, the dollar tends to strengthen; however, when the issue directly concerns the functioning of U.S. institutions — particularly the predictability of monetary policy — the market may choose caution rather than immediate dollar strength in the short term. Last week’s pricing somewhat favored the second possibility: the DXY wants to move higher, but the “clarity” required for sustainability above 97 has yet to emerge.

This Week’s Roadmap: What Will Determine the Dollar’s Course?

The week began with low volume due to the Presidents’ Day holiday. This could initially maintain oscillation within the 96.80–97 range. Three key topics stand out for the remainder of the week.

FOMC Minutes (February 18)

The minutes from the January meeting could deliver two critical messages to the market:

How eager are members for an “early cut”? If they view the improvement in disinflation as more durable, pricing for rate cuts in the first half of 2026 could strengthen. In this scenario, the DXY could be expected to test the 96.55–96.80 range more frequently.
Risk-management language: At times, even if inflation declines, the Fed signals its intention to keep rates elevated for an extended period by emphasizing the risks of “early easing.” Such a tone would limit the dollar’s downside and increase the likelihood of a move above 97.

Preliminary PMI Data (February 20)

This week, growth momentum could be just as decisive as inflation. If the s come in strong, the “soft landing” narrative would be reinforced; this could support the dollar by reducing the likelihood of the Fed acting prematurely. Weak PMIs could raise concerns about growth momentum, strengthening the case for rate cuts and making the 96.55 level more vulnerable for the DXY. Conversely, if PMIs remain firm or activity deteriorates more rapidly in the Euro/Sterling area, the dollar’s relative growth and interest rate advantage could be repriced.

Geopolitical and Commodity Effects

’s strong performance should be interpreted not only as alternative asset demand but also as a reflection of debates surrounding the dollar’s global role. During periods of strong gold performance, some investors may distance themselves from the dollar due to reserve composition considerations and risk-hedging behavior. An intensification of geopolitical tensions may reduce risk appetite, favoring the dollar in the short term, while in the medium term it could generate a risk premium against the dollar due to heightened political and institutional tensions in the U.S.

DXY Technical Outlook

The technical outlook continues to point to clear consolidation. The intermediate support level at 96.80 is critical, as is the 96.55 level, which serves as the lower boundary of the range. If weekly closes fall below 96.55, the market may interpret this as a breakout and open room toward the 94 region. For this scenario to materialize, two conditions are generally required: either the data clearly strengthens rate-cut pricing, or the dollar-positive narrative (Warsh/corporate discipline) temporarily fades into the background.

On the upside, a break above 97 may not be sufficient on its own; sustainability above 97 is the key issue. For this to occur, it would be more decisive for the index to accelerate back toward the 98 zone and for bond yields to show steady recovery. However, without a resolution to political uncertainty, it currently appears difficult for attempts above 98 to evolve into a sustained trend.

The “Managing Uncertainty” Period and the Dollar’s Breakout Points

In the first quarter of 2026, the dollar’s story is being shaped more by the pricing of uncertainty than by recession fears. In the short term, disinflation is reducing the dollar’s momentum; in the medium term, the institutional framework shaped by a disciplined Fed and leadership debates could determine its direction. This week’s upcoming minutes and PMIs may provide the first clear signals as to which side of the 96.55–98 range the DXY will lean toward. Pricing around 97, in particular, continues to represent the market’s equilibrium point between competing narratives.

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