US Dollar Forecast: DXY Rebounds as Trade Talks and Central Bank Signals Support Gains

Dollar Edges Higher as Trade Talks and Central Bank Signals Drive Reversal

The U.S. Dollar Index (DXY) clawed back ground Thursday after a four-session decline, lifted by positive developments in global trade negotiations and central bank commentary. By mid-session, DXY had turned higher, rebounding from oversold levels and eyeing near-term resistance.

The next technical hurdle stands at 97.664, with the more significant 50-day moving average at 98.400 serving as a key pivot. A daily close above this level could open the door for a retest of the June high near 98.950. On the downside, support remains distant at 96.377.

Ongoing Trade Developments Fuel Dollar Demand

Traders responded favorably to comments from Japanese central bank officials suggesting reduced economic uncertainty following a recent trade deal with the U.S. Deputy Governor Shinichi Uchida noted the easing tensions could reopen the door to future rate hikes—lending support to the yen but capping broader gains in the greenback versus the Japanese currency.

Meanwhile, trade headlines helped lift risk sentiment globally. The Australian dollar surged to a fresh eight-month high of $0.6625, while the euro edged down 0.2% to $1.1749, retreating from a recent multi-year high. Against the yen, the dollar rose 0.05% to 146.55, after hitting a two-week low earlier in the session at 145.86.

European Central Bank Faces Stronger Euro and Tariff Headwinds

Attention now turns to the European Central Bank, where traders anticipate commentary from President Christine Lagarde during its upcoming policy meeting. While rates are expected to remain unchanged, any guidance on currency strength and trade tariffs will be closely parsed.

Macquarie strategist Thierry Wizman emphasized that the euro’s appreciation this year, significantly outpacing the yen, could generate a stronger disinflationary impulse for the EU economy. ECB officials may need to consider easing policy if the euro’s strength weighs on exports and inflation targets.

PMI data reflected mixed signals across the eurozone: weakness in France due to fiscal constraints but underlying resilience in Germany. July figures showed modest business activity growth in the bloc’s largest economy.

Political Uncertainty and Fed Focus Limit Yen Moves

Japanese political risks remain in focus following reports that Prime Minister Shigeru Ishiba could resign following election losses. While Ishiba denied immediate plans to step down, succession speculation lingers. Societe Generale’s Olivier Korber said a smooth leadership transition could reduce uncertainty, potentially strengthening the yen over time.

The dollar showed limited reaction to news that U.S. President Trump plans to visit the Federal Reserve on Thursday—an unusual move that may increase tensions with Chair Jerome Powell but has not yet influenced policy expectations.

Market Forecast: Dollar Needs Higher Bottom to Validate Recovery

While the U.S. Dollar Index is attempting to recover from a four-day losing streak, the technical structure remains fragile. Price action is still below the 50-day moving average at 98.400 and has yet to reclaim the near-term pivot at 97.664. Without a higher bottom or at least a secondary higher low, the bounce lacks conviction.

Traders should watch for a clear base to form above the July low at 96.377 to suggest buyers are stepping in. Otherwise, the DXY remains vulnerable to a deeper pullback, and the recent rebound may be nothing more than a pause within a broader downtrend. A decisive close over 98.400 remains the key trigger for any sustained upside.

More Information in our Economic Calendar.