The U.S. dollar rose against a basket of foreign currencies on Monday, as the destruction wrought by Hurricane Irma was less severe than feared, and North Korea did not launch a missile over the weekend.
The dollar index's leg higher Monday, as it traded near the 91.86 mark, came just one session after touching multiyear lows; in fact, the dollar slipped to its lowest level since January 2015 on Friday, near 91.011.
The beaten-down currency is still down about 10 percent on a year-to-date basis as the likelihood appears to dwindle that the Federal Reserve will hike its federal funds target rate later this year due to tepid inflation and the economic uncertainty borne by hurricanes and by political drama.
In a Friday interview, New York Fed President William Dudley told CNBC that the catastrophic hurricanes "could have effect on the timing of short-term rate increases."
According to Boris Schlossberg of BK Asset Management in a note Monday morning, the key to the dollar now is the "speed of recovery in both Texas and Florida," much of which will depend on the swiftness of fiscal stimulus in those regions. He added that the longer-term picture remains "murky" with the sliding probability that the Fed will raise interest rates by this December.
The greenback has been under "significant" pressure for precisely this reason, said Stacey Gilbert, head of derivatives strategy at Susquehanna. Furthering the depressed levels in the U.S. dollar are geopolitical issues related to the North Korea nuclear situation and "kicking the can down the road" in raising the federal borrowing limit.
"The sentiment in the dollar is certainly cautious, and continues to be cautious. You can see the pressure. The consensus called that the dollar was going to be stronger this year; probably one of the worst consensus calls out there," she added.
The dollar has been "unable to find any traction" as U.S. yields continue to fall, wrote Brown Brothers Harriman currency strategists in a note to clients Friday morning. Indeed, the yield on the benchmark 10-year Treasury note hit a fresh low on Friday, the lowest since just after the U.S. election last November.
The recent relative strength in the euro has beaten the dollar down, wrote the strategists led by Marc Chandler. European Central Bank President Mario Draghi said in remarks Thursday that the "recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium-term outlook for price stability."
On a technical level, the dollar index has been consolidating since it advanced meaningfully in 2014, pointed out Craig Johnson, chief market technician at Piper Jaffray. The next level of support to the downside, Johnson said, appears to be the 89 level (which has not been touched since late 2014). This would imply about 3 percent of downside from levels as of Monday afternoon.
However, if in fact the dollar index falls to 89, "I'd suspect that you're going to get a bounce at that level. So anybody that wants to get really negative on the dollar here, I suspect is going to be disappointed from a trading perspective," Johnson said Thursday on "Trading Nation," and would expect to see a "relief rally" if the dollar reaches 89.
"There's no question, from our perspective, that the negative commentary, or the dovish commentary from the Fed, and also perhaps now uncertainty with who is going to lead the Fed going forward — the most powerful central bank in the world — is creating … some dollar weakness," he said.