US Dollar Forecast: Bullish Setup Possible with Fed on Hold and China Talks Advancing

Dollar Holds Firm Ahead of Fed Decision, Trade Talks Loom Large

The U.S. Dollar Index (DXY) is trading nearly flat at mid-session Wednesday, hovering just above key pivot support at 99.148 as traders brace for the Federal Reserve’s policy announcement and fresh U.S.-China trade talks. Price action has tightened as the market digests mixed signals from global risk sentiment and U.S. monetary expectations, keeping major currency pairs in check.

Fed in Focus, Inflation Risks on Traders’ Radar

With the Fed widely expected to leave interest rates unchanged, market attention is squarely on the tone of Jerome Powell’s post-meeting remarks. Investors are watching for any signs the central bank is growing concerned over inflationary fallout from U.S. tariffs. As Macquarie’s Thierry Wizman notes, the Fed may use its statement to push back on expectations for rate cuts, citing the unpredictable inflation consequences of trade policy. Traders are pricing in a 95.6% chance of a rate hold, according to the CME FedWatch Tool, though long-end yields have dipped, with the 10-year at 4.281%, as uncertainty lingers.

Dollar Finds Support vs. Safe-Havens

The greenback gained 0.6% against the yen to 143.28, recovering from a three-day slide, and climbed 0.15% against the Swiss franc to 0.8233. Markets continue to weigh global risk sentiment, especially with the Swiss National Bank signaling readiness to intervene to protect inflation stability. In contrast, the euro held flat at $1.1366 after modest gains earlier in the week, as political developments in Germany and joint defense efforts with France had minimal impact on FX markets.

Trade Negotiations Add to Market Caution

U.S. Treasury Secretary Scott Bessent and trade chief Jamieson Greer are scheduled to meet with Chinese officials in Switzerland this weekend. Their talks could mark the first thaw in tensions since Trump’s tariff announcement in early April. Traders remain alert for any indications that currency policies will be addressed, especially given speculation about possible FX deal discussions involving 17 trading partners.

DXY Technical Picture Tightens

Technically, the DXY continues to straddle critical support at 99.148. Holding above this level signals demand, with a break above 100.375 opening the door to 101.302. Conversely, a drop below 98.901 may invite a test of the three-year low at 97.921. The index’s consolidation reflects caution ahead of policy signals and trade outcomes.

Market Forecast

Barring any surprise from Powell’s remarks, the Fed is expected to maintain a neutral stance, reinforcing dollar stability. However, the DXY remains sensitive to trade developments. A constructive tone from upcoming U.S.-China meetings could firm Treasury demand and offer moderate support for the dollar, particularly if rate cut expectations ease. For now, dollar bulls will look for a hold above 99.148 to maintain upward potential, while bears await confirmation of a deeper break toward 97.921.

More Information in our Economic Calendar.