US Dollar Forecast: DXY at Risk of Breakdown if NFP Misses Expectations This Week

Dollar Ends August Soft as Rate Cut Bets and Fed Tensions Mount

The U.S. Dollar Index (DXY) wrapped up a volatile August with a mild weekly gain of 0.13%, closing Friday at 97.855. Still, the dollar lost 2.19% for the month—its largest monthly decline since May—pressured by firming expectations of a September rate cut and intensifying political scrutiny over Federal Reserve independence. With traders now laser-focused on next week’s nonfarm payrolls report, DXY remains caught in a broader recalibration of policy expectations and institutional credibility.

Core Inflation Holds Steady, Easing Momentum Builds

July’s core PCE price index rose 0.3% month-over-month and 2.9% year-over-year, unchanged from June and squarely in line with forecasts. Headline PCE moderated slightly to 2.6%. While the data failed to show further cooling, it also didn’t reverse the dovish momentum.

Fed Governor Waller endorsed a September rate cut, joining others signaling flexibility. Money markets are now pricing in an 87% chance of a 25 basis point cut this month, with a total of 55 basis points priced in by year-end.

Trump’s Push Against Fed Independence Rattles Markets

President Trump’s legal challenge to remove Fed Governor Lisa Cook has raised concerns about central bank independence. With the Fed formally neutral in court filings and no ruling issued yet, traders are watching whether the balance of the Board could shift more dovish. Trump claims he’s close to a majority of loyalists, which could tilt future policy regardless of inflation or labor data.

Yields Steady Ahead of Crucial Jobs Data

Long-end Treasury yields rose modestly, with the 10-year closing at 4.232% and the 30-year at 4.929%. The 2-year held at 3.621%, reflecting confidence in near-term easing. Focus now turns to Friday’s nonfarm payrolls, where economists expect 75,000 jobs added and unemployment to hold at 4.2%. The report will be pivotal in confirming or challenging the Fed’s easing path.

Weekly Chart: Dollar Closes Below Key Pivots

Technically, DXY closed the week below two key weekly pivot levels—98.317 and 99.177—now turned resistance. A sustained move above these levels is needed to shift weekly momentum higher, with 100.257 as the next upside target. On the downside, immediate support is seen at 97.109, with the primary bottom set at 96.377. The weekly close below pivots suggests bearish control remains intact unless challenged by stronger data or a policy surprise.

Market Forecast: Dollar at Risk if Labor Data Disappoints

With the dollar pinned below resistance and institutional concerns swirling, bulls lack a strong catalyst. All eyes now turn to the labor report. A soft print will likely reinforce the current dovish outlook and open the door for a test of 97.109 or lower. A stronger jobs number could test sellers’ conviction but would need to be paired with hawkish Fed commentary to lift DXY meaningfully above 98.317. Until then, the path of least resistance remains to the downside.

More Information in our Economic Calendar.