US Dollar Forecast: DXY Falls Below 50‑Day MA as Shutdown Risks Weigh on Market

Dollar Index Slips Below 98.00 as Shutdown Risks and Key Data Await

The US Dollar Index (DXY) fell below its 50-day moving average on Monday, sliding 0.32% to 97.774 as traders weighed the risks of a looming government shutdown and a full slate of U.S. economic data.

After failing to hold above the key retracement zone between 98.238 and 98.714 late last week, the dollar lost steam and now faces critical technical support at 97.412—the 50% retracement of the recent 96.218 to 98.605 range. A break below 97.199 would confirm a short-term trend reversal, putting the index on a bearish footing.

Shutdown Concerns Cloud Dollar Outlook

Concerns over a potential U.S. government shutdown weighed on sentiment, especially as the September 30 funding deadline approaches. Failure to pass a spending bill would trigger closures in several government agencies, with the first day of fiscal 2026 falling on Wednesday.

Analysts note that the dollar typically weakens ahead of shutdowns but often recovers once a resolution is reached. However, this time, the risk to market pricing is greater: a prolonged closure could delay key economic releases, including Friday’s nonfarm payrolls report, which is expected to show 59,000 job additions and an unemployment rate of 4.3%.

Fed Watch: Legal Threat to Governor Cook, Easing Expectations in Play

In a new twist, the dollar also faces uncertainty over the Federal Reserve’s leadership, with a legal battle brewing over Governor Lisa Cook’s potential removal.

The Supreme Court is being asked to rule on whether the President can legally dismiss her—an action that could raise questions about central bank independence.

Meanwhile, traders are pricing in 40 basis points of Fed cuts by December and 110 bps by the end of 2026, reflecting some easing in expectations after recent hawkish data.

Yen Leads G10 Gains as Yield Differentials Narrow

The yen outperformed on Monday, gaining 0.6% to 148.67 per dollar, reversing some of last week’s losses as investors bet on a hawkish turn from the Bank of Japan. Jefferies economists now favor short USD/JPY positions, citing potential rate hikes and regional FX policy shifts.

Meanwhile, Treasury yields slipped across the curve, with the 10-year at 4.145% and 2-year at 3.631%, as traders brace for key labor data.

Market Forecast: Bearish Bias Below 97.412 Support

With DXY now below its 50-day moving average and staring down a pivotal support zone at 97.412, the index faces downside risk. A break of 97.199 would confirm a trend change.

Until then, traders remain on alert for shutdown developments and labor data that could realign Fed rate expectations—and with them, dollar direction.

More Information in our Economic Calendar.