US Dollar Forecast: DXY Rallies as Powell Pushes Back on December Rate Cut

Dollar Index Jumps as Fed Signals Pause, Powell Dials Back December Cut Odds

The U.S. Dollar Index surged late Wednesday, rallying to multi-week highs following hawkish commentary from Federal Reserve Chair Jerome Powell. Despite delivering a widely anticipated 25 basis point rate cut, the Fed’s forward guidance and Powell’s remarks prompted a sharp upward repricing in Treasury yields and supported a firm bid for the dollar across major currency pairs.

At 19:21 GMT, DXY is trading 99.281, up 0.551 or +0.56%.

Fed Cuts But Ends QT as Liquidity Risks Emerge

The Federal Reserve lowered its target range to 3.75%–4.00% in its second rate cut of the year. Policymakers also formally ended quantitative tightening, citing signs of liquidity stress and falling reserve balances in the banking system. The Fed acknowledged limited visibility due to the government shutdown, noting its economic assessment was based on “available indicators.”

“The Fed had to qualify everything,” said Brian Jacobsen of Annex Wealth Management, pointing to the scarcity of data and signs of money market stress. Still, the policy decision itself delivered no surprises. Instead, market focus shifted swiftly to Powell’s press conference.

Powell Pushes Back on December Easing

Powell’s comments offered a clear signal that further cuts in 2025 are not guaranteed. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it,” he said, citing diverging views within the FOMC. The message prompted traders to reassess the Fed’s near-term path, even as the CME FedWatch Tool continued to show a 70% probability of another cut in December.

Michael Pearce of Oxford Economics expects the Fed to pause in the coming months. “Our view is predicated on a stabilization in labor market conditions,” he said, adding that further easing may not resume until 2026.

Yields Climb as Markets Reprice the Fed Path

U.S. Treasury yields surged after Powell’s comments. The 10-year yield rose 7.7 basis points to 4.06%, while the 2-year climbed 9.2 basis points to 3.586%. The 30-year moved up to 4.60%. This yield repricing helped extend the dollar’s gains, reinforcing its rally on both policy divergence and stronger rate differentials.

DXY Clears Resistance, Eyes October Highs

The initial move began earlier in the day as the Dollar Index cleared key resistance between 98.714 and 98.797. That breakout led to a push above the minor swing high at 99.139, with price accelerating to 99.333—just below the October 9 peak at 99.563. The technical breakout aligned closely with the Fed’s messaging, adding momentum to the dollar’s late-session gains.

Market Forecast: Bullish DXY on Rate Pause and Yield Strength

With Powell pushing back against expectations for a December cut and Treasury yields regaining ground, the dollar is poised for further strength in the near term. The break through layered resistance reinforces bullish momentum, and unless incoming data drastically underperforms or the Fed reverses tone, the DXY is likely to remain supported into November.

More Information in our Economic Calendar.