US Dollar Forecast: Bullish Momentum Builds in DXY as Powell Resists Rate Cuts

Dollar Index Hits 100.10 as Fed Holds Line and BOJ Hints at Hike

The U.S. Dollar Index (DXY) is closing out July with its first monthly gain of 2025, rising nearly 3% as traders respond to firm U.S. data, hawkish Fed messaging, and easing global trade risk. The index touched 100.10 in the session—its highest level since early June—before consolidating just below that mark into the final hours of the month.

At 15:39 GMT, the DXY is trading 99.889, up 0.002 or 0.00%.

Fed Steers Clear of Cut Talk, Market Reprices

The Federal Reserve left rates unchanged at 4.25–4.5% and gave no signal that cuts are on the table. Core PCE for June rose 0.3% on the month and 2.6% year-over-year, slightly above forecasts. Chair Jerome Powell stressed that decisions would be based on incoming data, saying, “We have made no decisions about September.”

Traders pulled back on near-term rate cut bets, supporting the dollar. At the same time, Treasury yields eased modestly: the 10-year fell to 4.336% while the 2-year dipped to 3.928%. Despite softer yields, dollar strength held—pointing to support from positioning, growth differentials, and risk sentiment rather than just yield spreads.

BOJ Signals Shift, but Yen Can’t Hold Gains

The Bank of Japan kept its policy rate at 0.5% but lifted inflation forecasts through 2027. Governor Kazuo Ueda cited persistent food price increases as a factor influencing expectations, raising speculation about a potential rate hike later this year.

The yen initially rallied, but gains faded. USD/JPY jumped to 150.52 by session close after swinging between small losses and gains. While market pricing now reflects a higher probability of BOJ tightening, traders appear to be waiting for more concrete action before adjusting positions further.

Trade Developments Help Remove a Key Risk Premium

Washington’s August 1 tariff deadline remains in focus, but with eight new trade deals announced, including a 15% tariff agreement with South Korea, the broader risk has eased. That clarity has supported broader dollar strength. Meanwhile, the euro remains under pressure. EUR/USD bounced to 1.1445 after hitting a seven-week low, but is still down nearly 3% this month.

Rabobank’s Jane Foley noted the euro had become overbought earlier this year and that recent trade developments “delivered a dose of reality for the European side.” U.S. assets, by contrast, have continued to attract inflows.

DXY Outlook: Strong Close for July with Fed, Inflation and Chart Levels Lining Up

The Dollar Index is closing out July with its first monthly gain of the year, supported by solid U.S. data, Fed pushback on rate cuts, and some relief on the trade front. Core PCE came in above forecast, and Powell made it clear the Fed isn’t ready to ease. That combination has helped push DXY well above its 50-day moving average, now at 98.30.

Technically, the market is holding above the 50% retracement of the 101.977 to 96.377 range. That 99.177 level is now acting as support. The 61.8% retracement at 99.838 is in play, with price currently straddling that zone. Bulls made a run at 100.10 but didn’t hold the break.

For now, the trend leans higher. If the index clears and settles above 99.838, it opens the door to 100.54 and potentially 101.98. On the downside, support comes in at 98.95 and 99.17. As long as U.S. data stays firm and the Fed holds its ground, dollar buyers are likely to stay active on dips.