US Dollar Forecast: Bullish Momentum Builds Toward 50-Day Moving Average Target

Dollar Index Nears 50-Day SMA as CPI Miss Spurs Yield Drop, Rate Cut Bets

The U.S. Dollar Index (DXY) extended gains Tuesday, hitting an intraday high of 98.324 after closing above the short-term pivot at 97.899 for a second consecutive session.

The move builds on bullish momentum, positioning the index just shy of its 50-day simple moving average (SMA) at 98.80. A break and close above this level would suggest the rally is evolving beyond short-covering, with the June 23 high at 99.421 emerging as the next target.

Price support remains at 97.899, with a failure to hold that level exposing downside toward 97.342.

CPI Undershoots Forecasts, Treasurys Rally Across the Curve

June’s CPI report showed inflation broadly in line with expectations, though the core reading came in slightly light.

Headline CPI rose 0.3% month-over-month for an annual gain of 2.7%, while core CPI climbed 0.2% on the month and 2.9% year-over-year. That modest undershoot pushed Treasury yields lower: the 10-year dropped three basis points to 4.401%, the 30-year yield fell to 4.945%, and the 2-year held near 3.889%.

With inflation appearing contained, Fed funds futures now price in 50 basis points of easing by year-end, with markets favoring a first cut in September.

Powell Under Political Fire as Trump Renews Rate Criticism

Political pressure on the Federal Reserve continues to rise after White House Economic Director Kevin Hassett confirmed legal reviews into whether President Trump could lawfully remove Chair Jerome Powell.

Though Trump has signaled he won’t take immediate action, his public demand for a 1% policy rate underscores growing tensions over the Fed’s current 4.25%-4.50% range.

Any perception of compromised central bank independence may feed into long-term repricing in the dollar and bond markets.

Dollar Supported by Yield Premium, While Asia and Pound Watch Continue

DXY strength has been underpinned by elevated U.S. yields and safe-haven flows, keeping the index near its highest since June 25.

USD/JPY hovered at 147.71, just off a recent high of 147.89. The offshore Chinese yuan briefly weakened to 7.1766 per dollar after Q2 GDP slightly beat expectations at 5.2%, but concerns over China’s economic fragility linger.

Sterling firmed to $1.1687 ahead of key remarks from Bank of England leadership.

Market Forecast: Bulls Eye 98.80 and 99.421, but Fed Optics Remain Crucial

With DXY printing a high of 98.324 and holding above 97.899, bullish momentum remains intact.

A sustained push through 98.80 would clear the path toward 99.421. However, traders must remain alert to Fed commentary and political risk, which could override technicals and reprice rate expectations swiftly.

More Information in our Economic Calendar.