US Dollar Forecast: DXY Slides as CPI Beat and Jobless Spike Fuel Fed Cut Expectations

US Dollar Weakens as CPI and Jobless Claims Fuel Fed Rate Cut Bets

The U.S. Dollar Index (DXY) slipped Thursday after early attempts to reclaim technical ground above the 50-day moving average were firmly rejected, with sellers stepping in at 98.087. The downside reversal pushed the index below the 97.859 Fibonacci level—now acting as near-term resistance—and left the greenback vulnerable to further downside pressure.

Dollar weakness accelerated as fresh inflation and labor data reinforced market expectations for a Federal Reserve rate cut next week. The DXY was last trading down 0.2% to 97.62, with the euro gaining 0.3% to $1.1731 and the dollar falling to 147.42 yen.

CPI Rises but Labor Market Data Commands Attention

The Consumer Price Index (CPI) rose 0.4% in August, doubling the previous month’s gain and exceeding expectations of a 0.3% increase. On a year-over-year basis, inflation climbed to 2.9%, matching estimates but marking the highest annual pace since January.

However, the CPI’s impact on Treasury yields and the dollar was muted by a sharp jump in initial jobless claims. Claims surged by 27,000 to 263,000—the highest level in four years—versus expectations for 235,000. This labor market deterioration is increasingly central to Fed policy deliberations. “Today’s inflation print is not hot enough to derail a 25 basis point interest rate cut,” noted ClearBridge’s Josh Jamner.

Treasury Yields Drop, Then Rebound on Mixed Signals

Yields across the Treasury curve dropped initially, with the 10-year dipping to 4.00% before rebounding to 4.021%. The 2-year yield fell to 3.50%, while the 30-year edged down to 4.658%. Bond markets remain sensitive to the dual signals of inflation pressures and labor market weakness.

Fed funds futures reflect this tension, with CME FedWatch data pricing in a 91–94% chance of a 25 bp rate cut at the upcoming FOMC meeting, and a 6–9% chance of a larger 50 bp move.

Technical Levels in Focus as Downtrend Gains Momentum

From a technical standpoint, the DXY remains under pressure. The 97.859 level has now flipped to resistance, while the next key support lies at this week’s low of 97.253. A break there exposes the main bottom at 97.109. Price action remains heavy below the 50-day MA at 98.100, and sellers continue to dominate below this threshold.

Outlook: Dollar Faces Pressure Into FOMC Decision

With inflation firming but jobless claims signaling labor weakness, traders are increasingly confident the Fed will deliver at least a 25 bp rate cut next week. Treasury yields may find support near current levels, but unless the labor data stabilizes, the dollar index could retest the 97.109 support. The near-term outlook remains bearish for the greenback unless it can reclaim the 97.859–98.100 resistance band with conviction.

More Information in our Economic Calendar.