US Dollar Forecast: DXY Falls as Trump’s Tariff Threats and Yield Drop Weigh

Dollar Index Retreats as Tariff Risks and Yield Drop Undermine Bullish Momentum

The U.S. Dollar Index (DXY) settled at 98.854 on Friday, down 0.544 points or 0.55%. While the move marked a notable decline, the session remained confined within Thursday’s range, highlighting trader hesitation and the potential for volatility. The daily swing chart still reflects an uptrend, with a breakout above 99.563 needed to reaffirm bullish control and open the path to 100.257.

Trump’s Tariff Warning Reignites Trade Tensions

Former President Donald Trump rattled markets by suggesting a “massive increase” in tariffs on Chinese goods and dismissing plans to meet with President Xi Jinping in South Korea. The renewed trade war risk hit sentiment, fueling concerns about retaliatory moves from Beijing. The uncertainty injected fresh doubts into markets that had grown comfortable with reduced geopolitical risk earlier in the year.

U.S. Yields Slide as Shutdown Blocks Data Flow

Trump’s comments compounded pressure on U.S. Treasury yields, which fell sharply Friday. The 10-year yield dropped 7.9 basis points to 4.069%, its lowest since mid-September. Investors were already cautious with the U.S. federal government shutdown suspending key economic releases, stripping markets of forward-looking guidance and reinforcing the dovish tone in rates.

Technical Bias Intact but Support Levels Draw Attention

Despite Friday’s pullback, DXY remains above its 50-day moving average at 97.999, preserving the broader upside bias. Immediate support sits at the 38.2% Fibonacci retracement level at 98.714, followed by deeper support at 98.238. A move below these levels would expose the index to further downside, particularly if U.S. yields extend losses into next week.

Euro and Yen Respond to Policy and Political Signals

The euro gained 0.41% to $1.161, while the yen strengthened 0.71% to 151.98. The yen remains pressured on the week, as uncertainty over the Bank of Japan’s tightening path intensified following fiscal dove Sanae Takaichi’s unexpected leadership win. Finance Minister Katsunobu Kato expressed concern over “excessive volatility” in FX markets, suggesting the potential for official intervention if weakness resumes.

Market Outlook: Key Dollar Support Levels in Play

While DXY maintains its uptrend, the index faces a test of key technical levels in the near term. Holding above 98.714 and the 50-day moving average supports a continued bullish case targeting 99.563.

However, a break below 98.238 would increase downside pressure, with the 50-day moving average at 97.999 acting as the next key level that could determine whether sellers gain further control—especially if yields remain under pressure and trade tensions intensify.

More Information in our Economic Calendar.