US Dollar Forecast: DXY Holds Firm as Yen Weakens and French Political Risks Support Dollar

Dollar Index Eyes Key Resistance as Geopolitical Risks Bolster Bullish Bias

The U.S. Dollar Index (DXY) is pressing higher early Tuesday, extending gains after breaking above its 50-day moving average at 98.028. Currently trading within a critical retracement zone from 98.238 to 98.714, the index is facing firm resistance, having already been capped at 98.605 last week. A decisive breakout above successive tops at 98.635 and 98.834 would shift focus back to the psychological 100.00 level.

That said, failure to overcome this resistance zone could trigger a reversal. If sellers defend this region and buyers capitulate, a drop below the 50-day moving average could reintroduce downside risks, potentially marking the beginning of another leg lower. DXY is straddling the midpoint of its broader trading range between the August 1 high of 100.257 and the September 17 low of 96.218, with a slight bullish tilt for now.

At 14:38 GMT, DXY is trading 98.517, up 0.405 or +0.41%.

Fed Policy Signals Clouded by Data Blackout and Shutdown

U.S. Treasury yields were largely unchanged, with the 10-year holding near 4.14% and the 2-year at 3.586%, as investors look to Fed commentary for policy clues in the absence of fresh data. The ongoing U.S. government shutdown has delayed key economic reports, including the September jobs data, creating an information vacuum.

This data freeze complicates monetary policy expectations. According to BMO’s Ian Lyngen, the lack of economic clarity makes it harder for the FOMC to alter the pace of rate cuts or consider tightening anew. Several Fed officials, including Governor Bowman and Chair Powell, are scheduled to speak this week, with markets listening closely for clues on how the Fed may proceed.

Global Political Risks Underscore Dollar’s Safe-Haven Appeal

Outside the U.S., political instability in France and Japan has boosted demand for the dollar. The greenback is nearing a seven-month high against the yen, close to JPY151.00, while the euro is under pressure, trading near $1.1660 following weak German factory orders and lingering concerns over the Macron government’s viability.

Japanese household spending exceeded forecasts, yet expectations of an inflationary fiscal policy under Japan’s incoming leadership are driving bond yields lower and the yen weaker. Meanwhile, euro weakness is compounded by widening French-German yield spreads and the risk of a failed French budget by the October 13 deadline.

Outlook: DXY Needs Break Above 98.834 for Momentum to Resume

For DXY traders, price action remains tied to geopolitical developments and U.S. policy signals in a data-light environment. A sustained move above 98.834 could trigger momentum-driven buying with 100.00 as the next major target. However, if this resistance continues to hold, a retreat below 98.028 could invalidate the bullish case and open the door to retesting September lows. Markets will be watching Powell’s remarks closely for the next directional cue.

More Information in our Economic Calendar.