US Dollar Forecast: DXY Rallies as Powell Uncertainty and Retail Sales Data Boost Volatility

DXY Tests 50-Day Average as Traders React to Powell Uncertainty, Strong Retail Data

The U.S. Dollar Index (DXY) surged early Thursday, breaching its 50-day moving average of 98.700 for the first time since February, hitting an intraday high of 98.950.

Though it failed to hold above this critical technical level, the index remains higher on the day and the week, with near-term market direction now hinging on whether this was a short-covering squeeze or the start of a sustainable move.

At 14:46 GMT, DXY is trading 98.718, up 0.439 or +0.45%.

Powell’s Status Adds Uncertainty, Supports Dollar Volatility

Market reaction was immediate after U.S. President Donald Trump reignited doubts about Federal Reserve Chair Jerome Powell’s job security. Trump denied any imminent plans to dismiss Powell but maintained a critical stance, creating uncertainty around the Fed’s independence.

The dollar initially rallied, supported by strong retail data, before giving back gains as traders weighed the implications of Powell potentially being replaced. Analysts warned that any real threat to Powell’s position could destabilize confidence in U.S. monetary policy and spark further market volatility.

Retail Sales and Jobless Claims Offer Dollar Tailwind

Economic data helped stabilize the greenback. U.S. retail sales rose 0.6% in June, well above the 0.2% estimate, while jobless claims fell by 7,000 to 221,000. These figures provided short-term support to Treasury yields and the dollar.

However, reaction was muted, with the 10-year yield drifting lower to 4.433% and the 2-year yield holding at 3.89%. Traders are watching these developments closely for confirmation that U.S. consumer strength can underpin dollar resilience.

Global Risks: Japan’s Election and Trade Deal Worries Weigh on Yen

The Japanese yen slid to 148.73 against the dollar, nearing one-year lows, as political uncertainty deepened ahead of Japan’s upper house elections.

Prime Minister Shigeru Ishiba’s coalition faces the risk of losing its majority, and trade talks with the U.S. remain unresolved.

Japan’s exports fell for a second straight month, amplifying concerns over tariff impacts.

The yen’s weakness underscores global investor preference for the dollar as a relative safe haven in current conditions.

Short Covering or Sustained Rebound? DXY Outlook Hinges on 98.700 Level

The dollar index’s ability to hold above the 50-day moving average at 98.700 will be critical. If this week’s gains reflect genuine buying interest—supported by firm economic data and rising yields—the DXY could accelerate toward the 99.421 resistance zone.

However, if the move proves to be short-covering driven, new sellers may reemerge and pull the index back to the 97.899 pivot. Traders should watch upcoming TIC data and U.S.-Japan trade headlines for further directional cues.

More Information in our Economic Calendar.