US Dollar Forecast: DXY Breaks 100 as Fed Cut Bets Fade and Risk-Off Flows Rise

DXY Crosses 100, Approaches Key Resistance at 200-Day Average

The U.S. Dollar Index (DXY) advanced to a three-month high on Tuesday, reaching 100.215 before pulling back slightly. This move marked the first break above the psychological 100 level since early August but stopped short of the August 1 high at 100.257. The next major technical barrier is the 200-day moving average at 100.421, a level likely to shape the direction of the current five-day rally.

A decisive move above that threshold could extend the advance toward the 101.977 target. On the downside, the nearest support is defined by the retracement zone between 98.714 and 98.238, which also houses the 50-day moving average at 98.279.

Fed Division Clouds Rate Cut Expectations

The dollar’s rise was underpinned by softening expectations for a December rate cut. After the Fed lowered rates last week, Chair Jerome Powell signaled that another cut in December is not guaranteed. Traders have adjusted accordingly, with the CME FedWatch tool now pricing in a 65% chance of a cut in December, down sharply from 94% just a week ago.

Ongoing government shutdowns have suspended official economic releases, leaving investors to rely on private data. Monday’s ISM manufacturing survey showed an eighth straight month of contraction in U.S. factory activity, reinforcing underlying weakness. Still, with no clear policy signal and limited data, the dollar continues to benefit from safe-haven flows and reduced rate-cut bets.

Sterling and Euro Undermined by Domestic Pressures

Weakness in the British pound and euro added further support to DXY. Sterling dropped 0.61% to $1.3057 after UK Chancellor Reeves flagged fiscal constraints and persistent inflation ahead of the budget. The euro dipped 0.2% to $1.149, trading near three-month lows. Broader risk sentiment remained defensive, adding to the bid for the U.S. dollar.

Yen Strengthens, But Intervention Risks Loom

The yen strengthened 0.4% to 153.56 per dollar after nearing levels that previously prompted Japanese government intervention. Finance Minister Katayama reiterated that exchange rate developments are being monitored with urgency, signaling potential action if weakness resumes.

Market Forecast: Cautiously Bullish as Fed Outlook and Risk Sentiment Support Dollar

The near-term outlook for the U.S. Dollar Index remains cautiously bullish, supported by a pullback in expectations for a December Fed rate cut and continued demand for safe-haven assets. With the CME FedWatch tool now reflecting only a 65% chance of another cut, compared to 94% a week ago, traders are reassessing dollar exposure in favor of holding through policy uncertainty. Meanwhile, global risk sentiment remains fragile, with equities under pressure and demand rising for defensive assets, reinforcing underlying dollar strength.

However, the rally faces a technical barrier at the 200-day moving average at 100.421. A sustained move above this level would likely signal that traders are pricing in a more hawkish Fed stance or deepening global risk aversion, opening the way toward the 101.977 level. Conversely, failure to break through may reflect limited conviction due to softening U.S. manufacturing data and the ongoing lack of official economic reports during the shutdown. In that case, traders may reassess long positions, potentially triggering a pullback toward the 98.714–98.238 retracement support zone.

More Information in our Economic Calendar.