US Dollar Forecast: DXY Near 3-Week High as Bitcoin Gains on Strategic Reserve Plans

Will the Dollar’s Rally Continue After the Fed Meeting?

The U.S. dollar index (DXY) hovered near a three-week high on Monday, trading at 106.98 by midday, as traders positioned for the Federal Reserve’s final rate decision of the year. Last week, the index touched 107.18, its highest since late November.

At 15:34 GMT, the U.S. Dollar Index (DXY) is trading 106.966, up 0.021 or +0.02%.

Markets widely expect the Fed to announce a quarter-point rate cut on Wednesday, though speculation about further reductions in early 2025 has eased. Fed Chair Jerome Powell is likely to emphasize inflation management, with policymakers closely monitoring price trends. While recent inflation upticks are seen as part of a broader disinflationary trend, uncertainty around the Trump administration’s potential policy moves may influence the Fed’s outlook.

What’s Pressuring the Euro and Yen?

The euro fell 0.1% to $1.0494, extending last week’s decline to $1.0453—its weakest since late November—after a surprise downgrade of France’s credit rating by Moody’s. While a eurozone business activity survey indicated stabilization, the data failed to reverse the currency’s bearish sentiment.

The yen also struggled, sliding to 153.92 per dollar after last week’s sharp drop. Speculation that the Bank of Japan may hold off on a rate hike this week added to the yen’s weakness, with traders bracing for potential dovish surprises from Thursday’s policy announcement.

How High Can Bitcoin Go?

Bitcoin hit a record high of $106,533 on Monday before pulling back to $103,916. The cryptocurrency’s surge followed President-elect Donald Trump’s recent comments about establishing a U.S. bitcoin strategic reserve, which sparked fresh optimism about wider adoption.

Analysts highlighted the break above $105,000 as a key technical milestone, with many now targeting $110,000 as the next resistance level. Tony Sycamore of IG pointed to Trump’s promise of making the U.S. the “crypto capital of the planet” as a major catalyst for Bitcoin’s continued rally.

What’s Next for Treasury Yields?

U.S. Treasury yields were little changed ahead of the Fed meeting. The 10-year yield slipped to 4.375%, while the 2-year yield edged down to 4.226%. Investors are focused on Wednesday’s Fed announcement and Powell’s press conference, seeking clues on future rate policy.

Additionally, key economic reports this week, including November retail sales and third-quarter GDP growth, could shape expectations for the Fed’s moves in 2025. Logan Moulton of Intelligent Wealth Solutions warned that inflation risks under the incoming administration might complicate the Fed’s path.

Market Forecast

The dollar is expected to remain firm in the short term, supported by the Fed’s cautious tone and robust U.S. data. Bitcoin’s bullish trajectory appears intact, with $110,000 as the next key level. Treasury yields may see limited movement until clearer signals emerge on inflation and Fed policy, keeping investors on edge as they await guidance for 2025.