DXY Outlook: Bullish Bias Intact but Upside Capped Ahead of Key Catalyst

Dollar Advances on Trump’s UK Trade Deal Signal, Fed Holds Steady

The U.S. dollar climbed on Thursday as traders reacted to President Donald Trump’s announcement of a trade agreement with the United Kingdom. The news, combined with a cautious Federal Reserve and rising Treasury yields, helped support the greenback across key currency pairs.

At 14:18 GMT, the U.S. Dollar Index (DXY) is trading 99.928, up 0.059 or +0.06%. This is up from a low of 99.609, and down from a high of 100.210.

Trump’s UK Trade Deal Sparks Dollar Buying

The U.S. Dollar Index (DXY) edged higher to 100.21, reflecting gains across most major counterparts. Trump’s declaration that a “full and comprehensive” trade deal with the UK would be announced later in the day helped reinforce positive sentiment around the greenback. The dollar rose 0.6% to 144.66 yen, extending its rally following the Federal Reserve’s decision to hold interest rates steady.

Sterling initially spiked on the deal news, rising as much as 0.5%, before pulling back to $1.3314 after the Bank of England cut rates by 25 basis points. The euro stabilized at $1.1309 after dropping 0.56% the prior session—its sharpest loss in two weeks.

Traders are weighing Trump’s broader trade push, which also includes potential deals with India, South Korea, and Japan. While optimism around the UK deal supported the dollar, market participants remain wary about the complexity of talks with Europe and especially China.

Fed Policy Stance Anchors Dollar Support

The Federal Open Market Committee maintained its federal funds rate target at 4.25%–4.5%, as expected. Chair Jerome Powell emphasized uncertainty in the economic outlook, citing risks from elevated inflation and rising unemployment. “It’s not at all clear what the appropriate response for monetary policy is at this time,” Powell said.

Despite holding rates, markets now price in three rate cuts by year-end, with the next move anticipated in the July–September window. Nonetheless, Powell’s neutral tone and acknowledgment of tariff-induced risks added a hawkish undertone, helping stabilize the dollar.

Treasury Yields Rise as Traders Assess Trade, Fed Signals

U.S. Treasury yields moved higher on Thursday. The 10-year yield rose over 3 basis points to 4.304%, while the 2-year yield climbed to 3.822%. The uptick came as traders digested the implications of Trump’s trade strategy and the Fed’s policy pause.

Better-than-expected labor data also added to dollar support. Initial jobless claims fell to 228,000, below consensus expectations, signaling underlying strength in the labor market despite tightening financial conditions.

Market Forecast: DXY Supported Near-Term, Eyes on China Talks

With the Fed standing pat and U.S. trade policy showing active momentum, the dollar remains underpinned in the near term. Continued firmness in Treasury yields and strong labor data enhance support for DXY above 98.901.

Attention now turns to this weekend’s meeting between U.S. Treasury Secretary Scott Bessent and China’s economic chief He Lifeng. While a breakthrough remains unlikely, any hint of progress could temper further dollar upside. Until then, DXY strength appears stable, with 100.50 as immediate resistance.

Technically, the key level to overcome on the upside is 100.375 and the key level on the downside is 99.172.

Because of the two higher bottoms at 99.172 and 98.901, we’re leaning to the upside. Taking out 100.375 will confirm this notion with 101.302 the next objective.

Taking out 98.901 will signal the return of sellers with the downside target zone 97.921 to 97.685.

More Information in our Economic Calendar.