US Dollar Forecast: DXY Rally Stalls Near Resistance After Core PCE Data Hits Target

Core PCE Data Hits Forecast, but Dollar Index Pulls Back from Key Resistance

The U.S. Dollar Index (DXY) weakened slightly on Friday following the release of August’s core Personal Consumption Expenditures (PCE) data, even as inflation remained sticky and consumer spending beat expectations. The index retreated from an intraday high of 98.605, just below resistance marked by dual peaks at 98.635 and 98.834, reflecting hesitation near critical technical levels.

The DXY has rallied from 96.218, the low set on the day of the last Federal Reserve policy announcement, but now trades within a key Fibonacci retracement zone from 98.238 to 98.714. This area reflects the 50% to 61.8% pullback of the broader 100.257–96.218 range. Notably, the index remains above its 50-day moving average at 98.024, signaling bullish bias as long as this level holds.

Core PCE Inflation Holds at 2.9%—What’s Next for Fed Policy?

August’s core PCE, the Fed’s preferred inflation gauge, rose 0.2% month-over-month and 2.9% year-over-year, both in line with expectations. The headline PCE index climbed 0.3% on the month, pushing annual inflation to 2.7%. These results are consistent with market forecasts and do little to shift the Fed’s current rate outlook.

Consumer resilience also stood out. Personal income rose 0.4% while personal spending jumped 0.6%, each beating consensus by 0.1 percentage point. The data further cements the narrative that despite elevated inflation and ongoing tariff-related pressures, U.S. consumers remain robust.

Treasury Yields Steady, Market Still Prices in Two More Cuts

Bond markets were muted following the data. The U.S. 10-year Treasury yield ticked down slightly to 4.168%, with the 2-year slipping to 3.649%. This subdued reaction suggests the inflation data was well-priced in. Importantly, weekly jobless claims dropped to 218,000, well below the Dow Jones forecast of 235,000, while Q3 GDP was revised higher to 3.8% annualized growth.

Such data strengthens the case for a resilient economy and complicates the path forward for the Fed. Traders remain confident in one more rate cut in October, and most still price in another by year-end via the CME FedWatch Tool.

Market Forecast: Dollar Bulls Facing Key Resistance Test

The DXY’s rally has lost steam near 98.714—the upper bound of the retracement zone—while technical and fundamental headwinds converge. A clean break above 98.834 would open the path toward the 100.00 psychological level. However, consolidation below 98.238 increases the risk of a pullback toward the 50-day moving average at 98.024.

As long as the Fed maintains its cautious easing bias and inflation remains stubbornly above target, the dollar could find support. But for now, bulls may need stronger data—or a fresh policy signal—to clear resistance convincingly.

More Information in our Economic Calendar.