US Dollar Forecast: Bearish Pressure Mounts on DXY After Break Below 50-Day Average

Dollar Pulls Back as CPI Data Strengthens Case for September Fed Cut

The U.S. dollar eased Tuesday after consumer price data for July reinforced expectations of a Federal Reserve rate cut at its next policy meeting. The CPI rose 0.2% in July, matching forecasts, after a 0.3% increase in June. Year-on-year, CPI held at 2.7%, just below the 2.8% consensus. Core CPI, excluding food and energy, rose 3.1% year-on-year, slightly above the 3% forecast, and 0.3% from June.

At 15:51 GMT, the U.S. Dollar Index is trading 97.974, down 0.523 or -0.53%.

Market sentiment tilted toward a September cut after last week’s weak payrolls data and the soft inflation print, with Corpay’s Karl Schamotta noting that “underlying inflation remains subdued, giving policymakers room for maneuver.” Fed Chair Jerome Powell is expected to address policy prospects at the Jackson Hole Symposium on August 21.

Euro and Yen Trim Dollar Gains as Yield Differentials Narrow

The euro reversed early losses to trade 0.06% higher at $1.16235, while the dollar pared gains against the yen, up just 0.17% at 148.390. Schamotta pointed to narrowing yield differentials across the short end of the curve as a key driver of dollar selling pressure, which could persist if upcoming data confirm a slowdown in U.S. economic activity.

Sterling advanced 0.4% to $1.34805 following UK labor market data showing continued weakness but resilient wage growth, a combination likely to keep the Bank of England cautious on rate cuts. The Australian dollar slipped 0.3% to $0.64945 after the RBA’s expected 25-basis-point cut, with ANZ forecasting another reduction in November.

Treasury Market Signals Mixed Rate Expectations

U.S. Treasury yields diverged after the CPI release. The 2-year yield dipped 2 basis points to 3.906%, reflecting short-term rate cut bets, while the 10-year yield rose 2 basis points to 4.297% and the 30-year gained nearly 5 basis points to 4.887%. Analysts said the data met expectations without igniting inflation fears, supporting the Fed’s scope to ease policy without undermining inflation control.

Tariffs and Global Trade Remain a Risk Variable

Currency markets largely shrugged off news that the U.S. will maintain elevated tariffs on Chinese imports for another 90 days. The extension, agreed by both sides, delays escalation but leaves core disagreements unresolved.

Former St. Louis Fed President James Bullard added to market chatter, saying he would accept the Fed Chair role if offered, stressing dollar stability and institutional independence.

Market Forecast: DXY Vulnerable if Fed Signals Aggressive Easing

With inflation contained and labor market softness emerging, the Fed has room to cut rates in September. Narrowing yield spreads and steady foreign currency resilience suggest the DXY could face sustained selling pressure toward key support levels if Powell signals readiness for deeper easing at Jackson Hole.

Technically, the U.S. Dollar Index is in a weak position after crossing to the bearish side of the 50-day moving average a 98.200. This indicator is new resistance. Today’s sell-off has put the market in a position to take out Fibonacci support at 97.859. This level is a potential trigger point for an acceleration to the downside with the July 24 main bottom at 97.109 the next major target.

More Information in our Economic Calendar.