US Dollar Forecast: Dollar Softens with Intervention Risk in Yen and Fed Cuts in Focus

Holiday-Thinned Trade Keeps Dollar on the Back Foot

The U.S. Dollar Index (DXY) opened the week steady-to-lower as traders positioned cautiously ahead of a series of delayed U.S. data releases. With banks closed Thursday and early closes on Friday, liquidity is set to deteriorate further, leaving the market hesitant to commit to fresh directional trades.

This shallow participation has masked the dollar’s response to shifting rate expectations, with many participants waiting for the Tuesday and Wednesday data suite before taking firmer positions into next week.

At 14:53 GMT, DXY is trading 100.180, down 0.016 or -0.02%.

Fed Repricing and Softening Yields Pressure Dollar Appeal

Treasury yields eased Monday, pulling the dollar with them. The 10-year yield slipped to 4.046%, reducing the return advantage that typically strengthens the greenback. The 30-year fell to 4.683%, while the 2-year held near 3.512%, leaving the front end stable but trimming longer-tenor support for the dollar.

Delayed September retail sales and Producer Price Index data arrive Tuesday and hold the potential to realign expectations ahead of the Fed’s final meeting of the year. Traders currently assign more than a 70% probability to a 25-basis-point cut next month. If the data softens further, the dollar could face more selling pressure as markets lean into those expectations.

Cross-Currency Moves Reinforce Dollar Softness Into the Holiday Week

Foreign currency flows kept the DXY capped near 100.182. The yen traded at 157.161 per dollar as markets monitored the risk of Japanese intervention. Tokyo’s warnings slowed the move but have not reversed it; any actual intervention would likely lower USD/JPY temporarily but may not disrupt wider dollar flows.

The euro gained to $1.1552 after comments from New York Fed President John Williams pointed to room for lower rates. Sterling held at $1.3118 ahead of the U.K. budget. The New Zealand dollar hovered at $0.5603 as traders prepared for an expected RBNZ rate cut, while the Australian dollar at $0.6454 awaited the CPI release. These flows collectively softened the dollar’s broader tone.

Yield Pullback and Muted Risk Appetite Limit Dollar Buying

Lower long-end yields and thin liquidity have constrained the dollar’s ability to build upward momentum. With participants reluctant to add risk before the long weekend, the dollar lacks the support normally provided by firmer yields or stronger data signals.

Dollar Tests Key Long-Term Mark as Technical Levels Tighten

The DXY remains on the strong side of the 200-day moving average at 99.851, but the market is drifting back toward that threshold. A break would expose the 99.693 pivot. On the upside, resistance stands at 100.395, and a break above it would clear a path toward 101.977.

The Dollar’s Next Move: What Traders Should Expect

Given softer yields, persistent expectations for a December cut, and poor liquidity, the short-term outlook leans bearish, with the index vulnerable to retesting support unless incoming data pushes traders toward firmer dollar buying next week.

More Information in our Economic Calendar.