US Dollar Forecast: DXY Holds Near 98.90 as Fed Rate Cut Decision Looms

Dollar Holds Steady as Markets Brace for Fed Decision and Rate Cut Signals

The U.S. Dollar Index (DXY) is slightly softer on Monday but holding near 98.90 as traders await key macroeconomic catalysts, particularly the Federal Reserve’s two-day policy meeting starting Tuesday.

At 13:28 GMT, DXY is trading 98.842, down 0.096 or -0.10%.

The index continues to hold above a critical support zone at 98.797–98.714, though any breakdown could accelerate losses toward the 50-day moving average at 98.128. On the upside, a move above 99.139 would mark renewed buying interest with potential to retest the monthly high at 99.563.

Markets are overwhelmingly pricing in a 25-basis-point Fed rate cut, with nearly 97% of traders aligned, according to CME FedWatch. However, the central bank’s forward guidance and any commentary on balance sheet adjustments will be closely scrutinized. Treasury yields edged higher ahead of the decision, with the 10-year yield up to 4.012%, while the 2-year rose to 3.497%, reflecting cautious repositioning.

Central Bank Week: ECB and BoJ in Focus

While the Fed dominates U.S. attention, Thursday brings rate decisions from both the European Central Bank and the Bank of Japan. The ECB is expected to hold rates steady, supported by strong euro zone data last week, which has buoyed the euro to $1.1628 and pushed it to a record 178.13 yen.

The yen, meanwhile, remains under pressure, sliding for a seventh session as markets assess the implications of Prime Minister Sanae Takaichi’s leadership and rising energy prices. However, risk remains skewed to the upside for the yen if the BoJ unexpectedly leans hawkish. Analysts see a potential debate within the BoJ on resuming rate hikes, though political constraints may prevent immediate action.

Dollar Mixed on Trade Sentiment, Yuan Strengthens

Investor sentiment remains anchored to U.S.–China trade developments. President Trump signaled optimism for a trade deal ahead of his expected meeting with Chinese President Xi Jinping later this week. The Chinese yuan firmed, with the PBoC setting the midpoint at 7.0881 per dollar—its strongest fixing since mid-October—pushing the spot rate to a one-month high at 7.1103.

Trade optimism has also supported higher-beta currencies like the Australian dollar, which rose 0.4% to $0.6541. Analysts flagged that positive risk sentiment may continue weighing on the dollar in the very short term.

Market Forecast: Dollar Index Bias Tilts Cautiously Bullish

Despite softer intraday movement, the DXY’s ability to hold above both the 98.797–98.714 support band and the 50-day moving average at 98.128 signals underlying buyer interest. Near-term directional bias hinges on Wednesday’s Fed outcome, but any indication of a slower quantitative tightening pace or improved dollar-yield appeal could provide fresh support.

While the index remains range-bound, a sustained break above 99.139 would confirm short-term bullish momentum. Conversely, a failure to defend the 50-day moving average would likely shift sentiment bearish.

More Information in our Economic Calendar.