US Dollar Forecast: Dollar Weakens as Falling Yields and Powell’s Outlook Shape Week Ahead

DXY Pauses Below Resistance as Geopolitical Risks and Fed Signals Jostle Sentiment

The U.S. Dollar Index (DXY) posted a marginal decline last week, easing from multi-month highs as geopolitical tensions, softening Treasury yields, and a persistent lack of U.S. economic data weighed on bullish conviction. Although the index maintained its broader uptrend, it failed to sustain gains above the pivotal 99.098 resistance level, reflecting hesitancy in the absence of fresh macroeconomic inputs.

Last week, the DXY settled at 98.854, up 1.143 or 1.17%.

Fed Outlook Reinforces Easing Bias, But Unity Lacking

Federal Reserve communications continued to support expectations for additional rate cuts in 2025. September’s meeting minutes revealed general consensus around the need for further easing, but highlighted internal division over the scale and timing.

While policymakers broadly acknowledged softening labor market conditions, caution around inflation persistence led to a “wait-and-see” tone. Market pricing remains firm for a quarter-point cut at the October FOMC meeting, with moderately reduced odds for another in December, reflecting the lack of data clarity due to the U.S. government shutdown.

Yields Edge Lower as Market Focus Shifts to Risk Events

Treasury yields moved lower on the week, as demand for U.S. debt remained resilient in the face of growing geopolitical risk and stalled fiscal negotiations.

The absence of updated economic data amid the shutdown compounded uncertainty, reinforcing expectations that the Fed will err on the side of caution. Lower yields broadly undermined dollar strength into the weekly close, despite supportive safe-haven flows earlier in the period.

Foreign Political Instability Adds Mixed Support

Weakness in the euro and yen continued to lend support to the dollar early in the week. Political dysfunction in France, where leadership uncertainty stalled fiscal reforms, weighed on the euro.

Simultaneously, Japan’s yen remained under pressure due to ongoing skepticism over the new government’s capacity to deliver effective fiscal stimulus. Despite these developments, the dollar’s advance moderated as global risk sentiment stabilized and U.S. yields declined.

Weekly Technical View: DXY Holds in Narrow Band Below Resistance

The Dollar Index continued to trade within a well-defined consolidation zone last week, holding below resistance at 99.098 while maintaining support at 98.238. Price action suggests growing indecision, with neither bulls nor bears able to force a decisive breakout.

A sustained move above 99.098 would likely shift momentum toward the July peak at 100.257, while a weekly close below 98.238 would signal a change in tone, exposing downside risk to 97.890 and possibly 96.218.

Market Forecast: Fed and Fiscal Clarity Needed for Breakout

The Dollar Index remains range-bound as traders await a decisive fundamental catalyst. With resistance at 99.098 and support at 98.238 still intact, directional conviction hinges on whether upcoming macro events break the deadlock. A sustained move above 99.098 could open the door to the July high at 100.257, while a weekly close below 98.238 would increase downside risk toward 97.890.

This week, attention turns to Federal Reserve Chair Jerome Powell’s scheduled remarks at the National Association for Business Economics Annual Meeting on Tuesday. His comments come at a pivotal moment, with the government shutdown delaying key releases—including the September CPI, now postponed to October 24. Markets continue to price in a 95% probability of a quarter-point cut at the October 28–29 FOMC meeting, but Powell’s tone may offer the only immediate clarity in a data-sparse environment. Until then, consolidation within the current range remains likely.

More Information in our Economic Calendar.