The US dollar short-term rebound and rate cut expectations are delayed

As of February 6, 2026, the US Dollar Index is at 97.85, continuing its recent rebound trend, with a slight fluctuation from the previous trading day’s close of 97.86, trading within the range of 97.45 to 97.87 throughout the day. Looking back at this week’s movement, the US Dollar Index has gradually recovered from its four-year low in late January, reaching a two-week high of 97.82 on February 5. The recent rebound is mainly supported by multiple factors such as delayed expectations of Fed rate cuts, marginal improvement in US economic data, and easing geopolitical tensions, demonstrating phase resilience.

The Federal Reserve’s policy stance has become the core driver of the recent dollar trend. US President Trump has nominated Kevin W. to serve as Fed Chair, and the market interprets his policy inclination as hawkish, favoring a smaller balance sheet and cautious on rate cuts, which has supported the dollar rebound. Meanwhile, hawkish voices within the Fed remain, with several officials emphasizing that rate cuts will not be easily pursued until inflation is fully under control. Coupled with the marginal improvement in US economic data in January, market expectations for short-term Fed rate cuts have further weakened. UBS forecasts that the next rate cut may be delayed until June, with possibly another cut afterward, bringing the policy rate range down to 3.00%-3.25%. The slower pace of rate cuts provides important support for the dollar.

Marginal improvements in US economic data have boosted the dollar’s rebound. Recently released US ISM manufacturing index has returned above the growth/ contraction line, and the services index held steady at 53.8, slightly above expectations, indicating that the US economic recovery momentum remains. Although January ADP employment data was below expectations, reflecting some weakness in the labor market, overall economic resilience is sufficient to support the Fed’s relatively cautious monetary policy, easing market concerns about a US slowdown and indirectly supporting the attractiveness of dollar assets.

Other factors also provide phase support for the dollar. Geopolitically, Iran and the US agreed to hold talks in Oman on February 6, easing concerns over escalation of military conflicts in the Middle East. As risk aversion subsides, funds flow back into the dollar system, further strengthening the dollar. From market positioning, the dollar index futures holdings have gradually increased, reaching 28,100 contracts on February 5, up significantly from 25,900 on February 2, indicating a rising bullish sentiment on the dollar.

Looking ahead, institutions generally believe that the dollar index will remain volatile and rebound in the short term, but face downward pressure in the medium to long term. The core driving factors show that in 2026, the Fed remains in a rate-cut cycle, and further declines in the federal funds rate will weaken the yield advantage of dollar assets. Coupled with structural factors such as expanding US fiscal deficits and the ongoing de-dollarization process, the medium- to long-term outlook for the dollar remains relatively weak. The expected core trading range for the dollar index in 2026 is 92-99, with short-term rebound heights possibly limited near the 98 level. Future movements will depend on key variables such as Fed policy statements, US inflation, and employment data.

For the global markets, the short-term rebound of the dollar will exert some pressure on non-US currencies, gold, and emerging market assets. Among non-US currencies, the euro and pound have recently shown oscillating declines; gold, as a non-yield asset, is under pressure due to dollar strength; and emerging markets should be alert to capital outflows driven by funds returning to the dollar system. Monitoring the dollar index trend and Fed policy adjustments will be crucial moving forward.