US Dollar Forecast: DXY Declines on Rising Expectations of a December Fed Rate Cut

Black Friday Breakdown: Dollar Sinks as Fed Cut Bets Surge

The U.S. Dollar Index ended the week on the defensive, closing at 99.479 after a disrupted and illiquid Black Friday session that reinforced the market’s dovish stance on Federal Reserve policy. Thin post-holiday trading conditions and a rare futures-market outage left the dollar exposed to the week’s prevailing selling pressure as traders priced in an 87% probability of a December rate cut.

A 0.72% weekly decline marked the weakest performance since late July, underscoring how quickly expectations have turned toward easing following the release of delayed post-shutdown economic data.

Fed Repricing Drives the Week’s Dollar Slide

The decisive driver for the DXY’s slide was the rapid build-up in expectations for a quarter-point cut at the December 9–10 FOMC meeting. An 87% implied probability reflects the market’s interpretation of recent U.S. releases as evidence of cooling growth.

As Eric Theoret of Scotiabank noted, the data “leaned towards a cut,” and this has lowered the anticipated return on U.S. assets. Rate-cut pricing typically weighs on the dollar because it reduces the yield advantage relative to foreign currencies.

Fed communication amplified this pressure. New York Fed President John Williams argued there is “room for a further adjustment in the near term,” signaling comfort with additional easing. As a leading member of the FOMC, his comments carried greater influence, steering interest-rate expectations lower.

While Susan Collins and Lorie Logan pushed back, the absence of broader hawkish opposition before the blackout period reinforced the market’s confidence in a December cut.

Global FX Gains Add Weight to the Dollar’s Decline

Cross-currency flows stayed dollar-negative through the week.

The euro ticked higher to $1.15985, benefiting from the broad U.S. selloff.

The yen strengthened to 156.191 per dollar, supported by expectations that the Bank of Japan could tighten as early as December.

Sterling slipped to $1.32318 on Friday but logged a strong weekly gain following budget developments in the U.K.

The Canadian dollar outperformed sharply after Q3 GDP beat expectations, pulling USD/CAD down to 1.39761.

These moves collectively pressured the DXY, as gains in major basket components reduce the index.

Treasury Market Sends Mixed but Dollar-Negative Signals

Treasury yields moved higher on the long end—10-year at 4.017% and 30-year at 4.665%—but that rise provided little support to the dollar. Short-end yields fell, with the 3-month bill dropping to 3.808%, reflecting conviction in near-term easing. The divergence shows the market expects front-loaded cuts even as long-term fiscal or inflation concerns nudge long-dated yields upward.

Market Forecast: Bearish Bias into the PCE Release

With traders heavily pricing a December rate cut and no counter-messaging available during the Fed blackout, sentiment favors further dollar softness. Unless next week’s PCE report reverses the cooling trend, the short-term outlook for the DXY remains bearish.

More Information in our Economic Calendar.