US Dollar Forecast: DXY Mixed as Jackson Hole Puts Fed Policy in Focus

Fed’s Policy Path Under Microscope at Jackson Hole

The US dollar is putting in a mixed performance on Tuesday, primarily weighed down by cautious sentiment ahead of this week’s Jackson Hole symposium, where Federal Reserve Chair Jerome Powell’s speech is set to guide near-term rate expectations. With no major economic data due before Powell speaks on Friday, traders are recalibrating positions after mixed inflation signals and soft July employment numbers boosted bets on a September rate cut.

While July’s weak nonfarm payrolls and muted CPI report initially strengthened dovish expectations, a hotter-than-expected Producer Price Index print raised questions about whether inflation risks are truly contained. Powell has already warned about inflation acceleration from tariffs, adding further weight to his upcoming comments.

At 15:25 GMT, the U.S. Dollar Index (DXY) is trading 98.138, up 0.005 or 0.01%.

Rate Cut Odds Repriced, But Risks Are Balanced

Markets have scaled back aggressive rate cut bets from last week. Pricing now reflects a 20-basis-point cut for September and roughly 54 basis points through year-end—down from over 25 basis points for September and more than 50 basis points by year-end. UBS strategist Vassili Serebriakov sees the risks as more balanced now, suggesting less room for disappointment if Powell does not fully endorse a September move.

The Fed’s July meeting minutes, due Wednesday, may offer limited insight since they precede the weak jobs data. Traders are watching for any subtle shift in tone that could indicate greater openness to easing.

Muted Dollar Action, But Euro and Yen Gain Slightly

The EUR/USD firmed to $1.1671, up 0.09%, while USD/JPY dipped 0.15% to 147.64. Currency volatility has eased in recent weeks as traders de-risk ahead of central bank guidance, with FX markets consolidating after a sharp dollar decline earlier this year.

Geopolitical risk remains a secondary concern, with markets lightly tracking developments in peace efforts around the Russia-Ukraine conflict. However, the focus remains squarely on monetary policy.

Treasury Yields Ease Ahead of Key Fed Signals

Yields on US government bonds slipped Tuesday. The 2-year Treasury yield dropped 2.5 basis points to 3.748%, while the 10-year yield fell 3.1 basis points to 4.308%. The softening in yields reflects investor caution and positioning ahead of Powell’s Friday remarks.

Outlook: DXY Awaits Powell’s Cue with Risk Skewed to the Downside

With dollar strength fading and Treasury yields edging lower, the DXY enters a critical juncture. Should Powell downplay inflation concerns and validate market pricing for cuts, further downside toward key support near 97.80 may unfold. Conversely, a hawkish tilt could trigger a retest of the 98.50 resistance zone. Until then, the index is likely to trade in a narrow range with low conviction  positioning.

Technically, all eyes are on the 50-day moving average at 98.100. Trader reaction to this indicator will set the tone into the close. The index could strengthen over the 98.317 pivot, but weaken if the 97.626 bottom is taken out with conviction.

More Information in our Economic Calendar.