US Dollar Forecast: DXY Rises on Yen Weakness, Holds Support as U.S. Data Weighs on Rate Bets

U.S. Dollar Index Inches Higher as Traders Eye Economic Data and Yen Weakness

The U.S. Dollar Index moved modestly higher Thursday, supported by gains against the yen and a steady showing against other major currencies.

After breaking minor resistance at 99.939, the dollar now looks poised to test the April 15 high at 100.276. A move above this level could trigger a push toward the 50% retracement mark at 101.302.

On the downside, short-term support stands at 99.10, with a break potentially opening the door to a slide toward 97.921—the lowest level in three years.

At 14:20 GMT, the DXY is trading 100.101,up 0.463 or +0.46%.

Why Is the Yen Under Pressure?

The Japanese yen tumbled more than 1% against the dollar, touching 144.74 at its weakest point after the Bank of Japan held rates steady and slashed growth and inflation forecasts. Markets interpreted the move as signaling less urgency for future tightening. The yen’s decline helped lift the dollar broadly, as money markets dialed back expectations for BoJ hikes, now pricing in just 11 basis points of tightening by year-end—down from 16 prior to the meeting.

How Did Other Major Currencies React?

While the dollar gained on the yen, it remained largely flat against the euro and pound. The euro hovered near a two-week low at $1.1288, while sterling was steady around $1.3335. The Australian dollar edged lower to $0.6391 after April inflation came in hotter than expected, paring dovish rate expectations. The New Zealand dollar was little changed at $0.5926.

Treasury Yields Steady Despite Weak U.S. Data

U.S. Treasury yields stayed in check following weak economic signals. The 10-year yield dropped to 4.147%, and the 2-year fell to 3.568%. Jobless claims rose to 241,000—well above expectations—adding to concerns after a 0.3% GDP contraction in Q1. The soft data has traders increasing bets that the Fed may begin cutting rates as early as June, despite expectations of no move at next week’s meeting.

Dollar Outlook Hinges on Jobs Data and Rate Expectations

While the dollar has regained footing following tariff-related volatility in April, near-term direction will hinge on Friday’s nonfarm payrolls report. A surprise in hiring—expected at 130,000—could alter rate expectations and drive the next move in both Treasury yields and the U.S. Dollar Index. Traders should watch for any deviation from forecast, as recent market reaction to data has been limited but could intensify.

More Information in our Economic Calendar.