US Dollar Forecast: Bearish Pressure Builds on DXY After CPI Miss and Fed Rate Cut Odds Rise

Dollar Index Holds in Tight Range as CPI Softens, Fed Cut Bets Strengthen

The U.S. Dollar Index (DXY) edged slightly lower on Friday, holding in a narrow band despite the release of September’s Consumer Price Index (CPI), which came in cooler than expected. The restrained price action suggests growing indecision among traders ahead of next week’s Federal Reserve meeting, with the inflation data adding to expectations of a dovish policy shift.

At 13:53 GMT, DXY is trading 98.946, up 0.032 or +0.03%.

Tight Trading Range Reflects Uncertainty Over Fed Outlook

The Dollar Index found initial support at 98.714, a key Fibonacci retracement level that has repeatedly held in recent sessions. Resistance remains at 99.139, this week’s high. The confined movement between these two levels points to hesitation, as traders digest CPI data and recalibrate expectations for near-term monetary policy.

While a break below 98.714 could trigger a pullback to the 50% retracement at 98.238, the broader market is focusing on the 50-day moving average near 98.113—last week’s low at 98.030 reinforces its importance as a short-term directional pivot.

Yields Slide as Bonds Price In Slower Inflation

Yields across U.S. Treasuries slipped following the CPI report. The 10-year yield dropped to 3.966%, falling below the 4% threshold as cooler inflation dampened rate hike concerns. The 2-year and 30-year yields also declined, settling at 3.442% and 4.561%, respectively. Falling yields reflect the bond market’s expectation that rate cuts are likely on the immediate horizon.

September CPI Print Undershoots Forecasts

Headline CPI rose just 0.3% month-over-month in September, undershooting the 0.4% estimate. On an annual basis, inflation held at 3%, also below the anticipated 3.1% rate. Core CPI, which excludes food and energy, came in at 0.2% monthly and 3.0% annually—both figures also softer than forecasts. The data, released after a delay caused by the government shutdown, marks a notable moderation in price pressures.

Rate Cut Odds Surge for October and December FOMC Meetings

Market participants quickly repriced expectations for Federal Reserve action. The CME FedWatch Tool now shows a near-certain probability of a 25 basis point rate cut at the upcoming October meeting, with the federal funds rate projected to fall to the 3.75%–4.00% range. Odds of a second cut in December jumped to 98.5%, reinforcing the view that the Fed will deliver a more accommodative stance through year-end.

Market Forecast: Dollar Index Likely to Break Lower If Fed Confirms Dovish Tilt

With inflation cooling and rate cut probabilities accelerating, downside risk is building for the U.S. Dollar Index. While the technical setup still allows for a potential bounce above 99.139, sentiment favors a bearish near-term outlook unless the Fed surprises with a hawkish message next week.

More Information in our Economic Calendar.