US Dollar Forecast: Consolidation Persists as Trump Targets Fed, Markets React

DXY Recovers Off Session Low as Fed Cut Bets and Political Jitters Collide

The U.S. Dollar Index (DXY) edged higher Thursday, reversing early losses as markets digested fresh geopolitical headlines, shifting central bank policies abroad, and more signs of political interference in U.S. monetary governance. The greenback briefly slipped to a 1-1/2-week low of 97.945 before climbing back to 98.39, up 0.2% on the session.

Euro Softens After Ukraine Optimism Fades

The euro retreated 0.3% to 1.1622 after an intraday rally to 1.1688—its strongest since July 28—fueled by optimism around talks between U.S. and Russian officials aimed at ending the war in Ukraine. While the prospect of peace initially lifted the euro, follow-through was limited, reflecting uncertainty around the timing and credibility of negotiations between Presidents Trump and Putin.

Pound Surges as BoE Cuts While Divided on Policy Path

Sterling rose 0.4% to 1.3409 after the Bank of England delivered a widely expected rate cut. However, a four-member dissent within the nine-member MPC reinforced market caution. While the central bank stuck to its “gradual and careful” guidance, analysts noted that persistent inflation and political risks could slow the pace of UK easing, supporting short-term GBP resilience against the dollar.

Fed Cut Bets Rise as Political Risk Creeps In

U.S. political developments continued to influence dollar sentiment. President Trump’s dismissal of a senior labor official following a weak nonfarm payrolls report, and his intention to nominate only dovish candidates to fill upcoming Fed vacancies, have raised concerns over Fed independence. Fed funds futures now price in a 91% chance of a 25bps cut in September—up from 48% just a week earlier—with markets factoring in roughly 60bps of easing by year-end.

Treasury Yields Steady as ‘Reciprocal’ Tariffs Take Effect

U.S. Treasury yields held mostly steady despite Trump’s sweeping new tariffs, which took effect Thursday. The 10-year yield dipped slightly to 4.225%, while the 2-year rose to 3.722%. Market reaction was muted, with investors viewing the trade measures as politically driven and unlikely to significantly disrupt near-term economic conditions.

Dollar Index Outlook: Consolidation Likely Below Resistance

The DXY remains locked between support at 97.859 and resistance at 98.683, with the 50-day moving average at 98.200 acting as a key pivot. With rate cut expectations firmly priced in and political tensions building, the index is likely to stay range-bound. Unless upcoming data or Fed commentary shift market conviction, the dollar looks set to consolidate near current levels.

More Information in our Economic Calendar.