US Dollar Forecast: Downside Momentum Targets 50-Day MA as Fed Nomination Risks Build

Fed Uncertainty Rattles USD Bulls Despite Rising Yields

The U.S. Dollar Index (DXY) weakened on Wednesday, slipping below the minor pivot at 98.683 and triggering downside momentum. Traders are now eyeing support near 98.317 and the 50-day moving average at 98.200. The intermediate trend remains intact above 97.109, though any failure to hold these lower levels could signal deeper retracement. Upside resistance is stacked, with 98.683 now acting as the nearest cap, followed by 99.177, 99.838, and the July high at 100.257.

At 14:23 GMT, DXY is trading 98.420, down 0.336 or -0.34%.

Dollar softness came despite higher U.S. Treasury yields, as investors focused instead on escalating political risk tied to upcoming Federal Reserve nominations.

President Trump confirmed a decision is imminent on a replacement for outgoing Fed Governor Adriana Kugler, while speculation swirls over Fed Chair Jerome Powell’s potential successor. Markets are wary of increasing political influence at the central bank, especially after Trump’s dismissal of BLS commissioner Erika McEntarfer following an unfavorable July jobs report.

ISM Services Data Fuels Stagflation Worries

Tuesday’s ISM services print added fuel to bearish USD sentiment. The headline index slipped to 50.1 in July, undercutting both June’s 50.8 and the 51.2 consensus. Beneath the surface, the price index surged to 69.9, its highest level since early 2022, while employment contracted further to 46.4. Deutsche Bank analysts called the data “worrisome,” citing stagflation concerns exacerbated by Trump’s tariff escalation.

New U.S. tariffs on India — an additional 25% duty imposed Wednesday — pushed the total levy to 50%, citing India’s continued import of Russian oil. The White House also threatened steeper penalties if these purchases persist, a move that adds geopolitical risk and further complicates the Fed’s policy calculus.

Bond Supply Pressure Meets Tepid Demand

The 10-year Treasury yield edged up to 4.238% following a $58 billion 3-year auction that showed soft demand, with a bid-to-cover ratio of 2.53. Additional supply is set to hit markets with $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds Thursday. While rising yields typically support the dollar, traders appear focused on rate cut expectations and structural risks tied to monetary policy credibility.

Market Forecast: Dollar Faces Headwinds Below Resistance Zone

With DXY struggling to regain 98.683, technical pressure favors a test of 98.200 and potentially 97.109 if bearish momentum accelerates.

While Fed speeches later Wednesday could offer near-term catalysts, traders are largely pricing in 86.5% odds of a September rate cut and 56 bps of easing by year-end.

Unless the Fed pushes back harder on dovish expectations, the dollar’s path to reclaiming 99+ may remain capped in the near term.

More Information in our Economic Calendar.