US Dollar Forecast: Bearish Pressure Builds on DXY Amid Fed Decision and Geopolitical Risks

Dollar Index Dips as Geopolitical Tensions and Central Bank Decisions Take Center Stage

The U.S. Dollar Index (DXY) slid to 97.685 on Monday, retreating from last week’s multi-year low of 97.621 but staying just above it as traders gauge whether the index is bottoming or poised for another leg lower. Market sentiment remains bearish, with short-covering likely to cap any rally and fresh short positions expected to emerge near resistance levels.

At 14:31 GMT, DXY is trading 97.890, down 0.248 or -0.25%.

Will the Fed’s Policy Guidance Reignite Dollar Demand?

All eyes are on the Federal Reserve’s policy announcement due Wednesday, with traders anticipating steady rates but watching closely for any change in tone regarding inflation and growth. The Fed’s forward guidance is expected to steer near-term price action, especially if officials hint at continued policy normalization despite tariff-related headwinds. According to Forex.com’s David Song, the FOMC may maintain a restrictive stance, as the current tariff regime has shown limited inflationary impact.

Geopolitical Tensions Fail to Spark a Safe-Haven Bid

Despite the escalated conflict between Israel and Iran, the dollar is not displaying its traditional safe-haven strength. Instead, traders are shifting focus to central bank policy rather than geopolitical risk. BNY Markets strategist John Velis noted the absence of a haven bid for both the dollar and U.S. Treasuries, even as oil markets eye possible disruptions in the Strait of Hormuz. Crude prices fell 3.3% Monday, unwinding part of Friday’s sharp rally.

Central Banks in Focus Beyond the Fed

A packed week of global central bank meetings is also dampening dollar momentum. The Bank of Japan is expected to hold steady, while speculation grows over potential tapering of its bond-buying program in the coming fiscal year.

The Bank of England, Swiss National Bank, Riksbank, and Norges Bank are all set to deliver rate decisions, adding further variables to FX volatility. Risk-correlated currencies like the Australian and New Zealand dollars rose sharply—up 0.9% and 1.2% respectively—while the oil-sensitive Norwegian krone reached highs not seen since early 2023.

DXY Outlook: Downside Risk Persists Below Technical Barrier

Technically, the DXY faces stiff resistance at its 50-day moving average near 99.80, and any rally is expected to stall below that level unless driven by a decisive shift in Fed tone. A confirmed break below 97.621 would suggest further weakness, opening the door to 95.137 support. Without a sustained risk-off environment or hawkish Fed pivot, the dollar appears vulnerable to extended downside in the near term.

More Information in our Economic Calendar.