US Dollar Forecast: DXY Rallies as Upward GDP Revision Limits Fed Cut Outlook

Dollar Index Surges as Upward GDP Revision and Jobs Data Reinforce Hawkish Fed Outlook

The U.S. Dollar Index (DXY) advanced sharply on Thursday, gaining 0.52% to 98.34, propelled by stronger-than-expected economic data and rising Treasury yields. The greenback broke above both its 50-day moving average at 98.025 and a key pivot level at 98.238, signaling renewed upside momentum. Traders now eye 98.635 and 98.834 as key resistance levels that, if breached, would confirm a bullish trend shift.

GDP Surprise Pushes Back Rate Cut Bets

The U.S. Commerce Department revised second-quarter GDP growth to 3.8% annualized, significantly above the previously reported 3.3%. Markets had not anticipated an upward revision, and the data suggests ongoing economic resilience despite signs of labor market cooling.

Fed rate cut expectations have been tempered by the report, with traders now questioning whether the Federal Reserve will proceed with more aggressive easing.

The dollar’s strength reflects this shift—rising to 149.39 against the yen (+0.33%) and pushing the euro down 0.39% to $1.1691. The greenback also gained 0.64% versus the Swiss franc, hitting a two-week high after the Swiss National Bank held rates steady at zero.

Treasury Yields Reprice Higher on Economic Strength

Yields rose across the curve following the GDP release and strong jobless claims. The 10-year Treasury yield climbed 4.4 basis points to 4.191%, while the 2-year yield—closely tied to Fed expectations—jumped 5.9 basis points to 3.657%. Even the 30-year bond yield edged up to 4.777%.

Jobless claims fell to 218,000 last week, down from 232,000 and below the Dow Jones forecast of 235,000. The report underscores ongoing labor market resilience and strengthens the case for a cautious Fed approach. Fed Chair Jerome Powell reiterated that labor softness could justify easing, but the GDP strength complicates the picture.

Fed Officials Signal Split, Data Will Guide Policy Path

Fed officials remained divided. Kansas City Fed President Jeffrey Schmid defended last week’s cut as necessary to protect the labor market, while Chicago Fed President Austan Goolsbee warned against easing further while inflation remains above target. Powell noted that risks to employment are now central to policy considerations, suggesting the Fed remains data-dependent.

Market Forecast: Dollar Index Poised for Breakout Above Resistance

With DXY holding above both key moving averages and momentum shifting to the upside, technicals favor a bullish continuation. A move through resistance at 98.635 and 98.834 would confirm trend reversal. Support is now firm at 98.025 and 98.238. Continued economic strength and rising yields may limit Fed easing, giving the dollar room to extend gains in the short term—especially if upcoming PCE inflation data confirms persistent price pressures.

More Information in our Economic Calendar.