US Dollar Forecast: DXY Edges Higher to 97.673 as Fed Rate Cut Bets Ease

Fed Patience Lends Brief Support, But Weekly Decline Holds

The U.S. Dollar Index (DXY) edged up to 97.673 on Friday, trimming some losses after touching a weekly low of 97.109 on Thursday. However, it still settled 0.21% lower for the week, logging its biggest five-day decline since late June. The modest rebound followed mixed U.S. economic data that helped temper expectations for near-term Fed rate cuts.

Core capital goods orders unexpectedly fell in June, signaling slower business investment, but a moderate increase in shipments kept the outlook from deteriorating sharply. That combination supported the Fed’s stance of holding rates steady for now—enough to slow the dollar’s recent slide but not reverse the broader trend lower.

Powell Under Pressure as Political Interference Resurfaces

The Fed’s independence remains in focus ahead of next week’s meeting, with President Trump once again pushing for rate cuts. While he stepped back from threats to remove Chair Jerome Powell, the reemergence of political pressure has added uncertainty to the Fed’s outlook. Strategists flagged this as a key downside risk for the dollar, noting it could cap gains even if the data supports a more patient policy stance.

BNP Paribas noted that trade-related uncertainty has declined recently, particularly following tariff developments, but the market remains sensitive to Fed commentary and political headlines.

BOJ and ECB Offer Limited Support for Dollar Bulls

The dollar gained 0.4% versus the yen to 147.59, aided by softer-than-expected Tokyo inflation. However, political fallout from Japan’s upper house elections may complicate the BOJ’s policy outlook, reducing scope for policy tightening. The yen’s weakness was not enough to lift the DXY meaningfully, as the euro closed flat at $1.1741, notching a 1% weekly gain.

Euro support came from the ECB’s relatively upbeat tone and optimism around a potential EU-U.S. trade deal. With UK retail sales and employment data disappointing, the euro also strengthened against sterling, hitting 87.43 pence—its highest level since April. The pound slipped 0.6% to $1.3434 against the dollar.

DXY Faces Strong Resistance at 98.508; Trend Remains Bearish

Technically, the DXY remains capped below its 50-day moving average at 98.400, after failing to hold above the weekly high of 98.508. The index closed at 97.673, just above immediate support at 97.109. The broader bearish trend remains intact below the 200-day SMA at 103.412. Without a hawkish pivot from the Fed, the DXY remains vulnerable to renewed pressure toward the July low at 96.377.

More Information in our Economic Calendar.