DXY Forecast: Dollar Gains as U.S.-EU Tariff Relief Boosts Risk Appetite

Dollar Strengthens on Eased Trade Tensions and Solid Economic Data

The U.S. dollar extended gains for a second straight session on Wednesday, buoyed by renewed optimism in trade relations and resilient domestic economic data. A swift pullback from tariff escalation with the European Union and a prior easing of tensions with China have lifted market sentiment and reduced fears around the U.S. growth outlook.

Federal Reserve Signals Steady Policy While Watching Inflation

The Federal Reserve’s minutes from the May 6–7 meeting, to be released Wednesday at 18:00, are expected to offer few surprises. The central bank left rates unchanged and highlighted elevated risks of both inflation and unemployment.

Strong consumer confidence data earlier in the week reinforced the Fed’s cautious stance, with policymakers likely to remain focused on curbing inflation unless clear signs of economic softening emerge.

Nvidia Earnings in Focus as Dollar Benefits from Risk Appetite

Investor attention also turned to Nvidia’s earnings, due after the U.S. close. Market participants expect the tech giant’s results to influence broader risk sentiment.

A solid performance could offer further support to the dollar, which has already benefited from improved market confidence following the reversal of U.S.-EU tariff threats. Karl Schamotta, Chief Market Strategist at Corpay, noted that the retreat from trade escalation has revived risk appetite and improved perceptions of the U.S. economic outlook.

Yen Weakens on Bond Demand Slump; Euro and AUD Under Pressure

The dollar gained 0.33% against the yen to 144.80, extending Tuesday’s rally after a soft auction of 40-year Japanese government bonds. Demand hit its lowest since July, reinforcing concerns around Japan’s debt sustainability. Tokyo may reduce issuance of super-long debt following recent sharp yield increases, weighing further on the yen.

The euro slipped 0.14% to $1.1312, while the Australian dollar fell 0.42% to $0.6416 after April inflation data held steady, preserving market expectations for further rate cuts. Meanwhile, the New Zealand dollar edged up 0.07% to $0.595 after the RBNZ delivered a 25 basis point cut but hinted it may pause easing sooner than expected.

Market Forecast: DXY Bullish as Trade Risks Recede and Data Holds Firm

With the dollar index up 0.32% at 99.91, near recent highs, the greenback remains underpinned by diminishing trade tensions, strong consumer sentiment, and expectations for a steady Fed policy bias. Unless Nvidia disappoints or Fed minutes reveal unexpected dovishness, the DXY outlook favors continued upside, especially against lower-yielding peers like the yen and currencies tied to easing central banks.

Technically, the trend is down so we’re looking at two days of short-covering. Buyers would have to recapture a pair of pivots at 99.908 and 100.336 before we can say momentum shifted to the upside. However, even with those moves, traders would still face headwinds at the 50-day moving average at 101.100.

More Information in our Economic Calendar.