US Dollar Forecast: DXY Holds 50-Day Support as Fed Rate Cut Bets Weigh on Outlook

DXY Holds Technical Support After Worst Week Since July as Safe-Haven Flows Shift Abroad

The U.S. Dollar Index (DXY) stabilized Friday after an early slide to 98.030, rebounding off its 50-day moving average and partially offsetting a sharp weekly decline. The recovery followed a multi-session retreat driven by capital rotation into non-dollar safe havens such as the Swiss franc and Japanese yen. For the week, the index is tracking a 0.7% loss—its steepest since July—reflecting a broader reassessment of U.S.-linked risk assets.

Safe-Haven Rotation Undermines USD on Trade and Political Risk

The dollar came under pressure as traders responded to renewed concerns over U.S.-China trade tensions and elevated political uncertainty. A three-week-long federal government shutdown has suspended key economic data releases, leaving investors with limited visibility into near-term U.S. fundamentals.

This vacuum has pushed safe-haven flows into alternatives like the Swiss franc, which posted a one-month high against the dollar, and the yen, bolstered further by Bank of Japan Governor Kazuo Ueda’s openness to a rate hike.

Fed policy has also added to dollar softness. Governors Waller and Miran signaled support for a rate cut at the upcoming meeting, citing mixed labor data and cooling consumer activity. With inflation pressures easing and growth signals softening, the case for further easing remains active.

Banking Concerns Ease, Lifting Treasury Yields and Curbing Dollar Losses

Investor anxiety over regional bank stability, which had intensified midweek after disclosures from Zions Bancorporation and Western Alliance, appeared to ease by Friday. Earnings from Fifth Third Bancorp helped reframe sector risk as manageable, limiting broader contagion fears.

This shift supported Treasury yields, with the 10-year rising to 4.009% and the 2-year to 3.464%, helping the dollar recover intraday.

Shutdown Adds Data Blindspot as Traders Focus on Fed Messaging

The unresolved shutdown has hindered the release of high-impact indicators, including retail sales and inflation reports. In this environment, traders are leaning heavily on Fed commentary to infer economic direction. Friday’s upcoming speech from St. Louis Fed President Musalem may further shape rate expectations heading into the FOMC decision.

Outlook: Dollar Holds for Now, But Bias Skews Bearish

The DXY’s defense of its 50-day moving average (98.035) offers temporary support, but the broader bias remains bearish.

Unless Treasury yields rise further or shutdown risks ease materially, safe-haven capital is likely to remain oriented toward non-dollar assets.

A sustained break below 98.035 would expose the next pivot at 97.412, while recovery above 98.714 would suggest stabilization—but current fundamentals don’t yet support that scenario.

More Information in our Economic Calendar.