We wrote yesterday COMMENT - Through war, the Fed & Trump effects on the USD.

Inside, we wrote the DXY has traded to a softest since March 2 of 97.83 and falling well below (making a sustained break?) the 200-dma at 98.53 last after topping at 99.15-18 latterly, 100.25-28 and 100.54-64. The backdrop is more risk friendly currently and we wrote latterly in the European FX Open as US President Trump said the US and Iran could agree to a permanent ceasefire “pretty soon” and talks may resume this weekend. He also plans to invite Israel and Lebanon to the White House for discussions as their 10-day truce kicks off today.

Of course, the ceasefires remain fragile and Israel and Hezbollah continued to trade strikes over the Lebanese border in the hours before the deal came into force at midnight local time (BBC News), but the backdrop is of continued de-escalation.

Next, downside targets look to be 97.50, then 96.49-50.

- Maintain caution?!

As ever, we keep positions light and nimble, with one eye constantly on the wires and news channels for latest developments, acknowledging the conflict's key players are volatile characters and things/events can turn quickly.

If the war ends imminently, the countries involved will face no more/reduced bloodshed, but prima facie there appears no clear winner. Regime change looks unlikely and there is little certainty as to how much Iran's nuclear ambitions have been damaged.

- USD downside?

Still, an end to the conflict would surely result in lower energy prices and boost energy importers over energy exporters and soothe growth outlooks, at least a little, good for high betas. The likes of EUR/USD and AUD/USD could well be in demand, for 1.20 and even 0.75 calls.

- The Fed effect

Of course, a de-escalation/resolution would impact here and put any tightening chances back to zero and raise the possibility of easing in 2026, proving a resurgent weight. See Dashboard. Implied probability of Fed rate cut by dec stands at 35% after Fed's Williams remarked yesterday that policy is well positioned to balance risks.

- On the way down

We have been suggesting that Usd 100/brl (up to that 119-120 area) is the bearish/bullish pivot for the DXY and in a RISK on vs off manner also.

But, on the way down, we think the Trump effect intensifies as an impacter.

- The Trump effect!

The DXY USD Index has been a notable faller for the most part in Trump 2.0 so far from circa 109.

On January 20 Inauguration Day, the market was gearing up for some rates (realised in the case of the RBA!) and growth convergence. These factors, potential drivers continue to be monitored.

But, Trump has been an impacter too as markets vote against his tariffs and the perceived threat to Fed's independence.

Through the war so far, another USD weight has seemingly been added, as the US President has picked fights with traditional allies and such volatile behaviour only goes to raise questions over the existing global financial order. So, markets then look for signs of diversification, debasement et al. Certainly, there has been signs of the latter during the presidency so far when GOLD traded above Usd 5500/oz for the first time in late January.

- Ranging?

The DXY's 2026 range has been 95.55 - 100.64. We do not see a break of either extreme at this juncture, but events in the Middle East need to be monitored closely. On balance, in the prevailing more optimistic backdrop, the former looks more vulnerable at this stage.

-Other leading firms

Following yesterday's COMMENT, a host of the big banks have stated their current view, which is always worth a look:

• WELLS FARGO and DEUTSCHE BANK see investors seeking riskier assets. WF recommend buying SEK vs USD; the German giant advised selling a broad- based measure of USD, seeing scope for EUR/USD to eventually breach 1.20.
• JPM - The USD appears to be emerging worse-off on a medium-term basis from the conflict, partly because of high spending on the war.
• STATE STREET - Their data shows investors are piling into protection via derivatives and boosting hedging ratios on the USD to 63% in the wake of the ceasefire announcement.
• CITI - The drivers for the diversification trade are there underneath, but they are just overshadowed by other worries right now.

Interesting stuff.