US Dollar Forecast: DXY Approaches 200-Day MA as Fed Split Clouds December Cut

Dollar Holds Higher Ground as Fed Split Clouds December Cut

The dollar firmed on Monday, extending its climb to a three-month high against the euro, as traders continued dialing back expectations for a December Fed rate cut. With the Fed’s latest 25 bp move now in the rearview, the market’s focus has shifted squarely to whether that was the last cut of the year — and for now, pricing suggests it might be.

Fed Division Puts Cut Odds on Shaky Ground

Powell’s post-meeting tone leaned cautious, emphasizing the risk of overtightening without a clearer read on economic conditions. That message landed alongside public pushback from several Fed bank presidents, who flagged discomfort with even the latest cut. Meanwhile, Governor Miran argued the opposite — that the Fed should be cutting more aggressively. The unusually sharp divide has muddied the outlook.

Traders have responded by trimming December rate cut odds to about 70%, down from 94% just a week ago. That’s helped lift the dollar across the board, particularly against the euro and yen, as rate differentials tilt in the greenback’s favor.

Shutdown Chokes Data Flow, But ISM Misses

The ongoing U.S. government shutdown — now in its 34th day — has delayed key economic reports, including nonfarm payrolls. That’s forcing traders to rely on second-tier data like ADP and ISM, with Monday’s ISM manufacturing print coming in soft at 48.7. It’s the eighth straight month of contraction, reinforcing a picture of sluggish demand — but not weak enough to cement a December cut.

Euro and Yen Retreat as Dollar Grinds Higher

The euro slipped to 1.15052, its weakest level since August 1, before clawing back slightly. The yen hovered near multi-month lows at 154.448, with the Bank of Japan’s gradualist stance failing to inspire confidence despite hints at a potential hike in December. Jawboning from Japanese officials suggests they’re watching closely — intervention risks are on the table.

Sterling was marginally weaker at 1.3190 ahead of the Bank of England’s meeting. A cut is on the table, but markets only see a one-in-three shot. The Aussie also dipped, though expectations that the RBA will stay on hold are offering some cushion.

DXY Nears 200-Day — Resistance Looms Overhead

The dollar index rose 1.00% to 99.988, approaching the top of its six-month range, with the August 1 high at 100.257 and the September 17 low at 96.218 marking key boundaries. It now sits just below the 200-day moving average at 100.458 — a level the index hasn’t traded above since February.

This isn’t a test — not yet. But it’s close. If bulls can force a breakout, it sets the stage for a squeeze through overhead shorts and opens the door to reclaiming trend control. Until that move materializes, the 200-day remains a cap — and sellers still have a clear level to defend.

More Information in our Economic Calendar.