US Dollar Forecast: DXY Capped by 50-Day MA as Core PCE Supports Fed Cut Case

Dollar Index Holds Tight as PCE Data Reinforces September Rate Cut Debate

The U.S. Dollar Index (DXY) edged higher to 97.987 on Thursday following an in-line PCE inflation report that did little to shift interest rate expectations. While inflation data met forecasts, traders remain focused on the Fed’s next steps and yield curve reactions—especially as the dollar trades within a key retracement zone.

At 14:06 GMT, the U.S. Dollar Index (DXY) is trading 97.935, up 0.038 or +0.04%.

Fed’s Preferred Gauge in Line—But Is Inflation Cooling Fast Enough?

July’s headline PCE rose 0.2% month-over-month, down from June’s 0.3%. Year-over-year inflation held steady at 2.6%. Core PCE, which excludes food and energy, rose 0.3% on the month and 2.9% annually—matching estimates but showing no slowdown from June’s pace.

That consistency is drawing mixed reactions. “This report doesn’t lower the odds of a September cut, but it also doesn’t strengthen the case,” said Manulife’s Michael Lorizio. The Fed’s focus now turns to September’s CPI and PPI releases, which could tilt expectations decisively ahead of the FOMC decision.

Yields Tick Higher, Trump-Fed Fight Adds a New Wildcard

Bond markets were subdued following the release. The U.S. 10-year yield rose 2.7 basis points to 4.234%, and the 30-year gained 4.1 basis points to 4.913%. The 2-year yield was little changed at 3.637%. While not a major repricing, the upward tilt in long-end yields suggests lingering uncertainty about inflation’s stickiness and Fed resolve.

Meanwhile, political pressure on the Fed added another layer. President Trump’s attempt to fire Governor Lisa Cook has sparked legal action and raised questions about central bank independence. A successful dismissal could allow Trump to reshape the Board with dovish-leaning members—potentially impacting future policy bias.

Spending Rebounds, Real Income Strength Lends Dollar Support

Durable goods spending jumped in July, driven by auto purchases, while real income excluding transfers—a key recession gauge—posted a solid increase. According to Brian Jacobsen of Annex Wealth, May and June weakness stemmed from tariff fears, but July offered a potential rebound. That resilience underpins support for the dollar, even as rate cut odds firm.

DXY Trades Within 98.317–97.859 Zone, Directional Clarity Still Lacking

The Dollar Index remains caught within a critical retracement band, ranging from 98.317 resistance to 97.859 support. Price is hovering below the 50-day SMA at 98.000, with bulls needing a close above 98.317 to retest 98.834 and 99.320.

A break below 97.859 would expose downside toward 97.556 and 97.109. Until the next jobs report and CPI data or Fed guidance shifts materially, DXY is likely to consolidate within this band.

More Information in our Economic Calendar.