US Dollar Forecast: DXY Approaches 95.14 Target as Fed Dovish Pivot Hits

Dollar Index Under Pressure: Is the 95.00 Level in Play?

The U.S. dollar endured a brutal June, dropping 2.5% for the month and over 8% year-to-date, with the Dollar Index (DXY) closing at 96.785 and testing critical support. This is not a simple pullback; fundamental and technical factors are stacking against the greenback, challenging its safe-haven status and historic policy premium.

Federal Reserve Dovish Shift Raises Rate Cut Bets

The Fed’s hawkish bloc is breaking. Christopher Waller and Michelle Bowman, known for their hardline stance, now openly support July rate cuts, citing rising unemployment among college graduates and broader labor softness.

Waller’s “all in favor” comment on CNBC ignited repricing, with markets now pricing a 23% chance of a July cut despite Powell’s hesitation. This shift is compressing U.S. yield differentials, eroding a key pillar of dollar strength.

Weak U.S. Economic Data Hammers Confidence

May retail sales fell 0.9% against expectations of -0.6%, with core retail sales down 0.3%. Motor vehicle sales plunged 3.5%, the largest drop since June 2024, while March and April employment reports were revised down by 95,000 jobs combined. These data points confirm the economy is losing steam faster than the Fed anticipated, reinforcing bearish momentum for the dollar.

Fed Independence at Risk as Trump Attacks Escalate

President Trump’s “numbskull” and “fool” remarks toward Powell, paired with threats of replacement, have intensified concerns about Fed independence. The May 29 White House meeting, intended to reaffirm autonomy, instead rattled markets. This erosion of central bank credibility is a significant headwind for the dollar’s global reserve status.

Trade Policy Volatility Dents Dollar Demand

Trade policy volatility is another pressure point. Average effective U.S. tariff rates swung from 2.5% to 27% before settling near 15.8% by mid-June, while a court ruling on Trump’s IEEPA tariffs added legal uncertainty. Terminated trade talks with Canada over digital taxes further cloud the outlook, undermining confidence in dollar-denominated assets.

Outlook: DXY Vulnerable to a Deeper Correction

The DXY is testing support around 96.70-97.00, with key resistance at 98.30-99.00. A break lower opens room for a move toward the critical 95.00 level.

Heavy institutional USD put positioning (59% of FX options volume) and forecasts from Goldman Sachs and UBS projecting further USD weakness signal that this June selloff may be the beginning of a broader correction rather than a pause.

Traders should prepare for persistent volatility as the July FOMC meeting and economic data releases approach, with the dollar’s downside vulnerability remaining elevated.

More Information in our Economic Calendar.