US Dollar Forecast: DXY Rises Toward 100 as Powell Tempers December Cut Bets

Dollar Index Eyes August High

The U.S. Dollar Index pushed to its highest level since early August during Thursday’s session, briefly clearing the October 9 swing high at 99.563 before stalling near 99.724. Early buying carried over from Wednesday’s rally, with traders responding to fresh signals from the Fed and cross-currency weakness.

At 15:33 GMT, DXY is trading 99.556, up 0.418 or +0.42%.

Minor support is holding at 98.714 to 98.238, with the 50-day moving average near 98.173 now acting as the primary line in the sand. If dollar bulls stay in charge, the next upside target is the August 1 peak at 100.257, followed by the 200-day at 100.538.

Powell Pushes Back on Dovish Bets

The dollar caught a tailwind Wednesday after Fed Chair Jerome Powell struck a more cautious tone on future rate cuts. While the Fed delivered a 25 basis point reduction as expected — taking the fed funds target to 3.75%-4.00% — Powell’s post-meeting remarks sent a chill through dovish expectations.

“A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it,” Powell warned, citing internal disagreements and a data vacuum from the ongoing government shutdown. That caught traders leaning the wrong way, trimming the odds of a December cut from 85% to 71% by Thursday.

Yields Reflect Fed Caution

Treasury yields climbed in step with the dollar. The 10-year rose over 2 bps to 4.087%, while the 2-year nudged higher to 3.612%. That modest steepening hints at the market reassessing how far and fast the Fed can ease into year-end. With Powell signaling uncertainty and dissent within the FOMC, traders are showing less conviction in chasing the dovish narrative — at least for now.

Dollar/Yen Surges on Policy Divergence, Euro Drops on Policy Divergence

USD/JPY surged 1.1% to 154.31, the highest since February, after the Bank of Japan disappointed markets by keeping policy steady and offering little clarity on future hikes. Governor Ueda’s hints at possible tightening in December rang hollow, with traders focusing instead on a lack of urgency. The divergence between BOJ patience and Powell’s pushback on cuts lit a fire under the dollar-yen pair, reinforcing broad dollar strength across the board.

The euro didn’t help the case for dollar bears either — EUR/USD dropped after the ECB left rates unchanged for the third straight meeting and offered no forward guidance. Traders saw the statement as confirmation that the central bank is done hiking, pushing the euro to its lowest level since October 14.

Bulls Eye 100.25 — But Watch Yields

The setup favors more upside in the DXY heading into next week — but it’s not a straight line. If yields hold or extend higher, and Powell’s cautious tone continues to suppress December cut bets, the path toward 100.257 remains in play.

Watch for any signs of bond market reversal or a Fed speaker walking back Powell’s tone — that could pull the dollar back toward its support zone. For now, buyers are still stepping in on dips.

More Information in our Economic Calendar.