US Dollar Forecast: DXY Slides Toward 97.50 as September Rate Cut Odds Soar

Dollar Index Falls Sharply as Powell Signals September Fed Rate Cut

The US Dollar Index (DXY) dropped decisively on Friday after Federal Reserve Chair Jerome Powell signaled that the central bank could begin cutting interest rates as early as September.

His dovish tone at the Jackson Hole Symposium raised expectations of a policy pivot, sending the greenback lower against major counterparts and pushing Treasury yields down.

At 16:30 GMT, the U.S. Dollar Index is trading 97.682, down 0.940 or -0.95%.

Powell Flags Labor Market Risk—Dollar Reacts Swiftly

Powell acknowledged in his remarks that although the labor market remains “in balance,” the balance is driven by slowing supply and demand for workers—a trend he called “unusual” and a potential risk to employment. That signal, while subtle, had strong implications: if labor data continues to weaken, the Fed could respond quickly.

The dollar index, which tracks the greenback against six major currencies, fell 0.77% to 97.85 after trading near 98.834 prior to Powell’s speech. The euro gained 0.85% to $1.1704, while USD/JPY dropped 0.96% to 146.92.

Rate Cut Bets Surge on FedWatch Data

The FedWatch Tool from CME Group showed market-implied odds of a September rate cut soaring to 91%, up from 72% earlier in the day. Pricing now reflects 56 basis points of easing by year-end, up from 48 basis points. These shifts follow Powell’s comment that financial conditions “may warrant” easing, and that the Fed was moving “carefully” with policy as the risks to the outlook shift.

David Laut of Abound Financial noted that Powell’s remarks “suggest the Federal Reserve is ready to cut in September,” especially with recent jobs data showing signs of cooling.

Treasury Yields Drop Across the Curve

Treasury yields slid as traders digested Powell’s message. The 2-year yield fell more than 10 basis points to 3.69%, and the 10-year yield dropped 7 basis points to 4.26%. The sharpest declines came at the short end, consistent with rising expectations of near-term easing.

DXY Outlook: Policy Easing Narrative Weighs on Dollar

With labor market data now positioned as the Fed’s primary focus, and market participants nearly fully pricing in a cut next month, downside pressure on the dollar is likely to persist.

Unless the upcoming employment report dramatically alters the outlook, DXY is expected to remain under pressure, especially against currencies supported by more hawkish central banks.

Support near 97.626 will be closely watched by traders for any signs of a near-term floor. If this level is taken out with conviction then look for a quick sell-off into 97.109 to 96.377.

More Information in our Economic Calendar.