US Dollar Forecast: DXY Rally Eyes 99.177–99.838 as Yield Spreads Regain Control

Dollar Index Breaks Higher as Trade Risk Premium Fades and Tariff Deals Take Hold

The U.S. Dollar Index (DXY) is sharply higher Tuesday, advancing past key resistance at the 50-day moving average of 98.300, which now serves as immediate support.

The breakout confirms a short-term trend reversal, targeting a critical retracement zone between 99.177 and 99.838. With DXY climbing above 98.950, the June 23 high at 99.421 and the May 29 peak at 100.540 are now potential upside targets.

U.S.-EU Tariff Deal Lifts Dollar; Greenback Recovers Against Euro

Dollar strength intensified after a weekend trade agreement with the European Union, which included a 15% U.S. tariff hike coupled with EU pledges to ramp up U.S. energy and defense spending. That deal helped the greenback notch its best session against the euro since May, underscoring market confidence in Washington’s ability to manage tariff risks without triggering damaging retaliation.

The euro fell over 1% on Monday, as traders digested the cost-benefit of Europe’s concessions. While similar trade pacts with Japan and the U.K. cover a combined 60% of U.S. trade, the dollar is gaining across the board—suggesting a broader unwind of the elevated risk premium tied to trade war fears that had weighed on the currency since April.

Federal Reserve in Focus, But No Immediate Rate Moves Expected

The dollar rally arrives as the Federal Reserve begins its two-day policy meeting, with no changes expected this week.

However, traders are eyeing upcoming labor market data and the June goods trade report, both of which will feed into the second-quarter GDP release later this week.

Treasury yields remain elevated following a $1.007 trillion borrowing estimate for Q3 and rising crude prices, while volatility in both equity and bond markets has receded to yearly lows.

Dollar Starts Tracking Yields Again—And That’s Bullish

Perhaps the most telling signal is the dollar’s reconnection with yield spreads. The U.S.-German 2-year yield gap widened by over 20 basis points since April, yet the dollar had lagged. That dislocation is now correcting, with DXY surging 1% Monday as rate differentials regain influence.

The Baker-Bloom-Davis Economic Policy Uncertainty Index’s trade component, a proxy for investor concern, has also dropped to its lowest since January—signaling declining tariff-driven stress.

Market Outlook: DXY Bullish Bias Intensifies into Key Retracement Zone

With the risk premium fading and trade tensions easing through successful deals, the U.S. dollar is regaining sensitivity to interest rate differentials and fundamentals.

DXY’s move through 98.950 activates the next target zone between 99.177 and 99.838. Sustained closes above 99.421 could set the stage for a test of 100.540. Until the Fed shifts dovishly, the dollar’s bullish case remains intact.

More Information in our Economic Calendar.