US Dollar Forecast: DXY Falls as as Fed Signals Weaken Bullish Case

U.S. Dollar Posts Worst Weekly Performance Since July as Fed Rate Cut Expectations Surge

The U.S. dollar edged higher on Friday but remained on track for its steepest weekly decline since late July. Post-holiday trading conditions kept volume exceptionally thin, muting price action as traders returned from Thanksgiving.

At 16:01 GMT, the dollar index, measuring the greenback against six major currencies, is trading down 0.13% at 99.406. However, five consecutive sessions of losses have cemented a substantial weekly retreat driven by growing conviction that the Federal Reserve will ease policy next month.

Key Technical Levels in Focus

Traders are contending with a confluence of resistance near current prices. The short-term pivot at 99.693 and the 200-day moving average at 99.707 are both capping upside attempts. A sustained break below this resistance zone could trigger a near-term test of the 50-day moving average and the main bottom at 98.991.

The 50-day moving average has controlled the short-term uptrend since approximately October 6, providing consistent support and trend guidance. Conversely, a convincing move above the 200-day moving average could launch a rally toward the psychological 100.000 level and the November 21 main top at 100.395.

Fed Rate Cut Probability Doubles in One Week

Market expectations for a December rate cut have shifted dramatically. Fed funds futures now price an 87% probability of a 25-basis-point reduction at the December 10 meeting, according to CME FedWatch data—more than double the 39% chance seen just one week ago.

The shift gained momentum after Fed President John Williams indicated the central bank could still cut interest rates “in the near term” without jeopardizing its inflation objectives. Lee Hardman, senior currency analyst at MUFG, noted these comments “give us more confidence that they will cut rates,” which has “at least temporarily, put a dampener on the dollar’s uptrend.”

Treasury Yields Tick Higher After CME Outage

U.S. Treasury yields moved modestly higher Friday following a data center cooling issue that disrupted CME trading during early hours. The 10-year yield rose to 4.032%, up 3.4 basis points. The 30-year bond climbed to 4.68%, adding 3.6 basis points, while the 2-year note ticked up to 3.506%.

With no major economic releases scheduled Friday, attention turns to next week’s personal consumption expenditures index, a key inflation gauge the Fed monitors closely ahead of its December decision.

Yen Stabilizes, Sterling Eyes Best Week Since August

The Japanese yen held steady near 156.2 per dollar after Tokyo consumer prices rose 2.8% in November, exceeding expectations and the Bank of Japan’s 2% target. This inflation print reinforces the case for potential monetary tightening in Japan.

Sterling slipped 0.3% to $1.3201 on Friday but remained positioned for its strongest weekly gain since early August, following UK Chancellor Rachel Reeves’ announcement of £26 billion in tax increases.

Short-Term Outlook

The technical picture favors bears while prices remain beneath the 200-day moving average and short-term pivot. The selling pressure could increase if the 50-day moving average fails as support.

Combined with surging rate cut expectations and thin liquidity into month-end, the near-term bias remains bearish for the greenback unless bulls can reclaim the 100.000 handle with conviction.

More Information in our Economic Calendar.