US Dollar Forecast: DXY Declines as Trump-Putin Talks and Import Prices Rattle Market

Dollar Index Slips Below Key Support as Traders Eye U.S. Inflation Data and Trump-Putin Talks

The U.S. Dollar Index (DXY) declined on Friday, down 0.33% to 97.882, after failing to break through its 50-day moving average at 98.10. This technical rejection has turned trader focus to this week’s low of 97.626. A breach below this level may accelerate selling toward the July 24 bottom at 97.109.

At 14:25 GMT, the DXY is trading 97.733, down 0.462 or -0.47%.

U.S. Rate Outlook Uncertain Ahead of Import Price Data

Recent upside surprises in producer prices have fueled expectations that inflation could accelerate in the near term. Friday’s import price report is now in sharper focus, especially after Thursday’s data showed a notable jump in PPI. Rising import prices would suggest that U.S. companies are absorbing tariff costs, raising the risk of pass-through inflation if firms begin passing costs to consumers.

Money markets now reflect a 95% probability of a 25-basis point Federal Reserve rate cut in September, with a slim 5% chance of a deeper 50-bp cut. The upcoming Jackson Hole symposium is expected to offer more insight into the Fed’s policy stance, especially with signs of labor market strain mounting.

Dollar Faces Headwinds from Risk Repricing and Global Growth Surprise

Morgan Stanley noted that the dollar’s risk premium remains elevated at 6%, offering room for further compression. The firm sees potential for additional downside in the greenback as global investors continue hedging their U.S. exposure.

Adding to pressure on the dollar, strong Japanese GDP data supported the yen, which rose 0.56% to 146.94. Export volumes from Japan held up better than expected despite ongoing U.S. tariffs. U.S. Treasury Secretary Scott Bessent’s comments on the Bank of Japan being “behind the curve” on inflation risks also helped lift the yen.

Geopolitical Risk Centered on Trump-Putin Talks; Euro and Pound Climb

Traders are watching closely for headlines from the Trump-Putin meeting in Alaska, where a potential ceasefire in Ukraine is under discussion. ING’s Francesco Pesole noted the euro could benefit more than the dollar from any de-escalation. The euro was up 0.34% to $1.1687, while the pound rose 0.24% to $1.3563.

Market Forecast: Downside Risk Builds for DXY Below 97.626

With the DXY failing to hold above its 50-day moving average and downside targets forming at 97.626 and 97.109, bearish pressure may build if Friday’s data confirms accelerating inflation.

A break below support levels would strengthen the case for Fed rate cuts, weakening the dollar further. Conversely, a move above 98.317 could shift sentiment back to the upside, but near-term risks remain skewed lower.

More Information in our Economic Calendar.