US Dollar Forecast: DXY Near Multi-Month Low as Ceasefire, Fed Talk Pressure Greenback

Dollar Index Holds Below 50-Day Moving Average as Traders Eye Key Support at 97.621

The U.S. Dollar Index (DXY) eased lower on Wednesday, trading inside Tuesday’s range in a sign of investor hesitation and potential near-term volatility. The index remains pressured after Tuesday’s sharp slide, triggered by a ceasefire deal between Israel and Iran that unwound recent safe-haven gains. With DXY nearing a critical support at 97.621, a decisive breach could open the door to deeper losses toward 95.137.

Upside attempts continue to meet resistance at the 50-day moving average, currently at 99.400. This level capped Tuesday’s high of 99.421, reinforcing the dominant downtrend. Until buyers push above this level with conviction, rallies are likely to be faded.

Middle East De-escalation Reverses Safe-Haven Bid

Last week’s geopolitical tensions had underpinned the greenback. But with President Trump celebrating the swift resolution between Israel and Iran—and expressing optimism over future diplomacy with Tehran—risk sentiment has turned. This has weakened the dollar broadly, especially as the market recalibrates expectations tied to global trade and monetary policy.

Traders are watching closely as the July 9 deadline for U.S. tariff negotiations approaches. Analysts suggest the deadline may be extended, which would likely reduce market stress but also weigh modestly on the dollar, reinforcing the view that DXY could remain under pressure unless new catalysts emerge.

Federal Reserve Policy Expectations Turn More Dovish

Dollar sentiment was further dented by dovish remarks from Fed officials Michelle Bowman and Christopher Waller. Most notably, Fed Chair Jerome Powell’s testimony on Tuesday included an acknowledgment that recent inflation pressures could have warranted additional rate cuts were it not for tariffs. Markets responded swiftly, with fed funds futures now pricing in 60 basis points of rate cuts by year-end—up from 46 basis points just days earlier. The first cut is fully priced in for September.

Karl Schamotta at Corpay noted that traders “are choosing to interpret Powell’s comments as groundwork for an early-autumn rate cut,” which has weakened DXY sentiment.

BOJ and Dollar-Yen Divergence

The dollar managed modest gains versus the yen, climbing 0.49% to 145.62. Bank of Japan officials struck a cautious tone, citing tariff risks and calling for a steady rate policy. However, hawkish voices within the BOJ warned that inflation could soon require a more decisive tightening response, underscoring divergence from Fed expectations.

Market Forecast: DXY Downtrend Remains Intact

With technical resistance firmly intact and macro signals turning against the greenback, the DXY remains vulnerable to further downside. Unless the index can reclaim levels above its 50-day average, bears are likely to target a retest—and potential breakdown—below the 97.621 support. Short-term sentiment hinges on economic reports, Fed commentary and clarity on the U.S. tariff deadline.

More Information in our Economic Calendar.