US Dollar Forecast: DXY Holds Ground, EUR/USD Eases After Eurozone Inflation Miss

Dollar Flat as Trade Tensions, Weak Data Cloud Fed Outlook Ahead of Payrolls

The U.S. Dollar Index (DXY) traded flat by mid-session Tuesday after early gains were erased by renewed concerns over global trade tensions and soft economic data. The greenback had initially rallied on short-covering and positioning ahead of U.S. labor data, but buyers pulled back as weak manufacturing prints and fiscal uncertainty tempered enthusiasm.

At 15:11 GMT, the U.S. Dollar Index is trading 99.232, up 0.524 or +0.53%.

Technically, the two-sided price action suggests bearish traders are exhibiting a little reluctant adding to their short positions this close to major support at 97.921 to 97.685. This makes it vulnerable to a short-covering rally with 99.49 a potential near-term target.

Trade Talks in Focus as China Pushes Back on U.S. Demands

The White House signaled a potential phone call this week between President Trump and Chinese President Xi Jinping, stoking anticipation for a de-escalation in trade tensions. However, optimism faded after China’s Commerce Ministry pushed back on U.S. claims of trade violations. The Trump administration is seeking final trade offers by Wednesday, raising the risk of a renewed tariff standoff.

Markets have grown increasingly sensitive to trade developments, particularly as data from both the U.S. and China point to real economic damage. China’s private PMI showed factory activity contracting for the first time in eight months, while U.S. manufacturing contracted for a third consecutive month in May—signs that tariffs are beginning to bite.

Eurozone Inflation Miss Reinforces ECB Cut Expectations

The euro briefly climbed to a six-week high of $1.1454 before reversing to $1.1386, after eurozone inflation undershot the ECB’s 2% target. Traders are now fully pricing in a rate cut from the central bank later this week. Long-dated eurozone bond yields declined, reinforcing the dovish rate environment abroad and helping the dollar stabilize.

Swiss Franc Gains Capped by Deflation Fears, Debt Talks Resurface in U.S.

USD/CHF edged up to 0.8181 after Swiss CPI turned negative for the first time in four years, adding pressure on the Swiss National Bank to ease. Meanwhile, dollar sentiment remained fragile as the U.S. Senate began debating a $3.8 trillion tax-and-spending package, stoking debt sustainability concerns and reinforcing a “sell America” bias that has dogged dollar-denominated assets.

Market Outlook: Payrolls, Not Policy, May Guide the Next Dollar Move

With U.S. job openings up but layoffs also rising, traders are looking to Friday’s nonfarm payrolls for clarity on labor market resilience. A weak print could rekindle expectations of Fed easing, especially with rate cuts largely priced out in the near term. Until then, DXY is likely to remain range-bound, tracking trade headlines and Treasury market stress signals.

More Information in our Economic Calendar.