US Dollar Forecast: DXY at Risk of Breakdown if CPI Cools and Fed Cuts Deepen

Dollar Index Finds Support as Jobs Revision Fuels Fed Cut Bets

The U.S. Dollar Index (DXY) is edging higher Tuesday after hitting a 7-week low of 97.253, rebounding modestly as traders digest a sharp downward revision to U.S. job growth and reassess expectations for Federal Reserve policy. The bounce suggests technical support is holding near the July 24 low of 97.109, but the broader trend remains bearish.

Jobs Data Shock Reinforces Fed Cut Case

Markets were jolted after the Bureau of Labor Statistics released benchmark revisions showing U.S. job growth was overstated by 911,000 positions between April 2024 and March 2025. The revision was near the high end of estimates and casts fresh doubt on the underlying strength of the U.S. labor market. Average payroll gains for June through August were just 29,000—well below the level needed to maintain the unemployment rate.

The revision not only undermines confidence in recent employment reports but also increases pressure on the Federal Reserve to act more decisively. Traders are now fully pricing in a 25 basis-point rate cut at the Fed’s upcoming meeting, with CME FedWatch showing nearly 12% odds of a 50 basis-point move. Treasury yields reacted with caution, holding near multi-month lows. The 10-year yield sits at 4.065%, barely above key support at 3.9%.

Dollar Softens Against Majors; Yen Rises on BoJ Rate Hike Hopes

The greenback slumped to ¥146.32 against the yen, its weakest since mid-August, helped along by reports that Bank of Japan officials may raise rates again this year. The euro touched a seven-week high at $1.1752, while sterling rose to $1.3558.

Political reshuffles across Asia and Europe—such as the resignation of Japan’s Prime Minister and changes in Indonesia’s finance leadership—have added short-term FX volatility, but traders remain focused on U.S. monetary policy and data risks.

Inflation Readings Could Temper Dovish Fed Bets

The near-term DXY tone will hinge on Wednesday’s PPI and Thursday’s CPI data, which will be critical for assessing the impact of tariffs and supply-side price pressures. If inflation comes in hotter than expected, it could limit the Fed’s scope for aggressive cuts—even with the labor market showing signs of stress.

DXY Technicals: Can Bulls Clear the 50-Day MA?

Technically, DXY remains in a downtrend. Resistance looms at the 61.8% retracement level of 97.859 and the 50-day moving average at 98.100. A close above 98.100 would signal potential for a short-covering rally. However, if the 97.109 support fails, the next downside target lies at 96.377.

Outlook: Downtrend Intact Until Data or Fed Surprises

While DXY has found temporary footing, it remains under bearish pressure. Any sustained recovery will require either upside inflation surprises or a more cautious Fed message. Until then, the bias remains to the downside with traders watching inflation and Fed commentary for the next catalyst.

More Information in our Economic Calendar.