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US Dollar Forecast: DXY Gains Slightly as Traders Eye Fed Rate Cut
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DXY edges higher but stays below 50-Day Moving Average as weak jobs data and firm CPI keep traders focused on Fed’s next move. Rate cut bets dominate ahead of FOMC.
US Dollar Index Edges Higher Friday
The US Dollar Index (DXY) recovered modestly on Friday, gaining 0.20% to 97.691, though still poised for a second consecutive weekly decline. This modest rebound followed Thursday’s sharp move lower, driven by a combination of softer labor market data and slightly firmer inflation, prompting renewed recalibration of FOMC expectations. Technically, the index is trading below the 50-day moving average at 98.139, reinforcing its near-term bearish bias.
Mixed US Data Shifts Rate Cut Expectations
Recent economic data delivered conflicting signals. Jobless claims surged to the highest level since October 2021, marking the largest weekly rise in four years and suggesting labor market softening. Meanwhile, August CPI rose 2.9% year-over-year — the strongest monthly gain since January — while core CPI advanced to 3.1%, both remaining above the Fed’s 2% target but broadly in line with expectations.
Adding to the uncertainty, consumer sentiment dropped sharply in September. The University of Michigan’s preliminary reading fell to 55.4 — the lowest since May — missing expectations of 58.1 and slipping from 58.2 in August. The decline points to weakening household confidence heading into the final quarter, reinforcing concerns over the durability of consumer spending.
This combination of softer labor and sentiment data alongside sticky inflation complicates the Fed’s path. Fed funds futures now reflect near certainty of a 25 basis point cut at the September 17 FOMC meeting, while pricing for a 50 basis point move has diminished. Traders are increasingly anticipating a more measured pace of easing through year-end, scaling back expectations for deeper cuts.
Treasury Yields Rebound Post-Data
Treasury yields reversed Thursday’s declines as markets reassessed the inflation-labor narrative. The 10-year yield climbed 6.7 basis points to 4.078%, while the 2-year rose 4.1 bps to 3.57%, and the 30-year yield reached 4.696%. The broad-based rise suggests investors are still adjusting for inflation persistence even as labor indicators weaken, creating tension for policymakers balancing dual mandates.
Cross-Currency Moves Reflect Central Bank Divergence
The euro edged lower to $1.1725 after the ECB held rates at 2% and signaled a more neutral policy stance, with markets reducing odds of another cut this cycle. The dollar gained 0.4% against the yen to 147.76 following a U.S.-Japan statement opposing disorderly FX moves. Sterling slipped 0.2% to $1.3553 on news of stagnant UK GDP in July, further weakening near-term sentiment.
Market Outlook: DXY Faces Cautious Bias into FOMC
With the DXY holding below the 50-day average and rate expectations stabilizing around a 25 bps cut, short-term direction hinges on next week’s Fed guidance. A divided FOMC or hawkish tone could offer support, but a dovish tilt — especially with labor concerns — would likely cap upside. Expect heightened volatility as markets digest the updated dot plot and Powell’s press conference.
More Information in our Economic Calendar.
About the Author
James Hyerczykauthor
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.
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