US Dollar Forecast: Bullish Momentum Builds as DXY Clears 50-Day MA on Tariff Ruling

U.S. Dollar Index Surges as Yields Spike and Tariff Ruling Fuels Volatility

The U.S. Dollar Index (DXY) surged on Tuesday, breaching key technical levels as Treasury yields spiked and global financial markets reacted to a U.S. court ruling invalidating most of the Trump-era tariffs. The DXY jumped past the 50-day moving average at 98.000, which now acts as near-term support, before touching an intraday high of 98.595.

Technical Breakout and Key Levels

The initial rally in the DXY appeared to be driven by aggressive short-covering after the index broke the 50-day moving average. Support is now established at 98.000, with secondary levels at the 61.8% Fibonacci retracement (97.859) and former double-bottom lows at 97.536 and 97.556.

Resistance was re-established at 98.317 (50% retracement), followed by Tuesday’s high at 98.595 and the August 22 swing top at 98.834. The move underscores renewed bullish momentum, though intraday volatility remains elevated.

Treasury Yields Spike on Tariff Uncertainty

The sharp rise in the dollar coincided with a significant jump in Treasury yields. The 30-year yield topped 4.97%, its highest since late July, while the 10-year yield hit 4.279%. The 2-year yield rose to 3.656%. This comes after a federal appeals court ruled that most of the Trump administration’s global tariffs were unconstitutional, citing Congressional authority over taxation. The decision introduces fiscal uncertainty, raising the possibility of tariff refunds and heavier Treasury issuance.

Markets interpreted the potential loss of $172 billion in tariff revenue by 2025 as a blow to deficit reduction efforts, adding pressure to the long end of the yield curve. The ruling is expected to be challenged in the Supreme Court, but traders are already pricing in increased sovereign risk.

European Bonds and Global Risk Sentiment

Yields also surged across Europe, with France’s 30-year yield hitting a 16-year high amid political instability and budget concerns. In the UK, similar concerns saw 30-year gilts climb to levels not seen since 1998. Sterling fell over 1% as questions emerged about the credibility of the new economic leadership under PM Keir Starmer.

This broader bond selloff pressured global equities, with the Dow falling over 500 points intraday. Simultaneous rallies in gold and the dollar highlighted market dislocation, as traders sought safety in both hard assets and cash.

Market Forecast: Bullish Bias with Caution

The DXY’s break above the 50-day moving average marks a shift in short-term sentiment. Traders will be closely watching Friday’s non-farm payrolls report for further cues on Fed policy.

With volatility picking up and yields threatening to break new highs, DXY may test 98.834 next. Sustained trade above 98.317 could open the door to a push toward 99.000, while failure to hold 98.000 would signal renewed consolidation.

More Information in our Economic Calendar.