US Dollar Forecast: DXY Gains as Treasury Yields Rise Despite Fed Rate Cut

Dollar Index Surges as Yields Defy Fed Rate Cut

The U.S. Dollar Index (DXY) is sharply higher at mid-session Friday, extending gains for a third straight session after bouncing from its multi-year low of 96.218 earlier this week. The rebound comes in the wake of the Federal Reserve’s rate cut, with traders closely tracking technical levels and U.S. Treasury yields for the next move.

At 15:30 GMT, DXY is trading 97.641, up 0.279 or +0.29%.

Technical Bounce Faces Resistance Ahead

From the 96.218 low, the DXY has surged to 97.809, bringing it close to the 50-day moving average at 98.081 and the 50% retracement level at 98.238. This 98.081–98.238 range is seen as a potential ceiling where sellers could reassert control. A confirmed break above would be technically significant, potentially shifting sentiment, but traders remain cautious with resistance intact.

Treasury Yields Climb Despite Fed Easing

In a move that challenges conventional expectations, longer-dated U.S. Treasury yields rose following the Fed’s quarter-point rate cut. The 10-year yield climbed over 3 basis points to 4.135%, briefly touching 4.145%, the highest level since September 5. The 2-year yield edged up to 3.574%, while the 30-year yield advanced to 4.757%. The divergence between rising long-term yields and a softer policy stance reflects investor concerns over inflation, growth, and heightened Treasury issuance.

Wells Fargo Flags Growth and Inflation Concerns

According to Scott Wren, senior global market strategist at Wells Fargo, the continued rise in the 10-year yield “syncs with rising GDP estimates and inflation moving slightly higher.” The backdrop suggests that investors expect stronger economic resilience than implied by the Fed’s “risk management” rationale for easing. The Fed has signaled two more cuts may come before year-end, but bond markets appear more focused on persistent price pressures and fiscal dynamics.

Labor Market Signals Offer Temporary Support

Weekly jobless claims data showed fewer Americans filing for unemployment, easing immediate concerns of labor market weakness after last week’s spike. While the labor market remains softer compared to earlier in the year, the latest figures supported dollar strength and helped validate the reversal bottom in the index. Next week’s August personal consumption expenditures (PCE) data will be key for assessing inflation trends and Fed policy credibility.

Market Forecast: Dollar Bulls Eye Resistance Test

The DXY recovery remains intact, with near-term focus on the 98.081–98.238 resistance zone. A failure here could see renewed selling pressure, while a decisive breakout would reinforce bullish sentiment. With Treasury yields climbing despite Fed easing, traders should prepare for volatility as technicals and macro signals converge.

More Information in our Economic Calendar.