US Dollar Forecast: Could Thursday’s Retail Sales Data Push DXY Into Bearish Territory?

Dollar Index Falls Below Key Resistance as CPI Miss and Trade Easing Shift Rate Expectations

The U.S. Dollar Index (DXY) retreated to 100.58 by mid-session Wednesday, slipping 0.40% as investors recalibrated expectations for Federal Reserve policy following a softer-than-expected inflation print and calming trade tensions.

This decline deepens a two-day pullback from resistance at 101.302 and the downtrending 50-day moving average of 101.900. Momentum suggests a potential test of the next technical target near 99.391, the short-term 50% retracement level.

CPI Miss Prompts Renewed Fed Easing Bets

April’s consumer price index (CPI), released on Tuesday, rose just 0.2%, missing the 0.3% consensus forecast, and reinforcing market bets on Fed rate cuts. Annual CPI now stands at 2.3%, down from 2.4% expectations, while core inflation held steady at 2.8%.

The softer inflation profile prompted a broad USD sell-off, with the euro rising 0.33% to $1.1222, sterling up 0.24% to $1.3335, and the dollar down 0.96% against the yen at 146.04.

Rabobank’s Jane Foley noted the dollar is behaving more like a “risky” asset post-April tariff announcements, diverging from its typical safe-haven role.

Treasury Yields Tick Higher Despite Softer Inflation

Despite the CPI miss, U.S. Treasury yields inched up, signaling investor skepticism over how quickly inflation could justify aggressive Fed cuts. The 10-year yield held near 4.505% and the 2-year rose 1.5 basis points to 4.032%.

Analysts at Deutsche Bank suggested tariff-related inflation pressures have yet to materialize, citing a muted impact in April data. They anticipate more pronounced effects in consumer prices by June, especially as recent trade deals and a 90-day tariff reprieve delay inflationary fallout.

South Korea FX Talks Highlight Dollar Sentiment Shift

News of May 5 talks between South Korea’s Deputy Finance Minister and U.S. Treasury officials added to pressure on the greenback. The Korean won surged over 1% to 1397.35, its strongest in a week. Scotiabank analysts interpreted the meeting as a signal that U.S. officials may favor a weaker dollar stance—an impression reinforced by broad Asian currency gains.

Market Forecast: DXY Vulnerable Ahead of Retail Sales, Powell Speech

With traders pricing in 53 basis points of Fed easing through year-end—likely starting in September—the dollar index looks vulnerable to deeper downside. Thursday’s U.S. retail sales, PPI data, and a speech from Fed Chair Powell will be crucial for near-term direction. Failure to reclaim the 101.30 level could open the door to further retracement toward 99.40 support.

More Information in our Economic Calendar.