US Dollar Forecast: DXY Slips 0.16% as Rate Cut Bets Rise After Waller Comments

Dollar Index Holds Weekly Gains as Fed Rate Bets and Tariff Effects Jostle Market Sentiment

The U.S. dollar posted a mild retreat on Friday, but the Dollar Index (DXY) still secured a 0.61% weekly gain, driven by shifting expectations around Federal Reserve policy and the inflationary effects of ongoing tariff tensions under President Trump.

Friday’s session saw the DXY settle at 98.462, down 0.153 points, or 0.16%. The retreat followed a volatile week triggered by mixed inflation prints and political pressure on Fed Chair Jerome Powell, whose tenure remains a flashpoint for investor uncertainty. The euro recovered 0.26% to $1.1651 but ended the week lower, while the dollar gained 0.94% against the yen, settling at 148.795.

Tariff-Linked Inflation Rattles Rate Expectations

Consumer prices posted a moderate gain in June, but Fed officials and market strategists are bracing for broader inflation spillover as Trump’s tariff policies begin to bite. While the producer price index remained flat, Fed Chair Powell has cautioned inflation could rise this summer due to these trade levies.

The inflation outlook has pushed back expectations for the Fed’s next rate move, even as weakness in the hiring trend contradicts the stable headline employment data. Strategists like DRW Trading’s Lou Brien note that while layoffs remain below pre-pandemic levels, poor hiring could sharply elevate unemployment if dismissals pick up.

Fed’s Waller Pushes Back—Rate Cut Talk Builds

Fed Governor Chris Waller struck a dovish tone Friday, favoring a rate cut at the July FOMC meeting. He cited weak private-sector labor data and downplayed inflation risks from tariffs, stating the Fed should “get ahead” of a potential hiring slowdown.

This aligns with fed funds futures pricing in 45 basis points of easing by year-end, signaling two quarter-point cuts are likely—most traders eye September for the first move. Markets briefly priced more aggressive easing mid-week after reports surfaced that Trump might fire Powell, though the dollar rebounded after the rumor was denied.

Yen Outlook Hinges on Japanese Election Risk

In FX crosses, the yen traded cautiously into Japan’s upper house election, where the ruling coalition faces a potential loss of majority. The dollar rose 0.13% to 148.795 yen, with political risk and U.S.-Japan trade talks in focus. Japanese Prime Minister Shigeru Ishiba met with U.S. Treasury Secretary Scott Bessent, who expressed optimism about a tariff agreement.

Dollar Index Stalls Below 50-Day SMA as Bulls Face Resistance at 98.950

The U.S. Dollar Index (DXY) daily chart shows a short-term rebound stalling just below the 50-day simple moving average (SMA), currently acting as resistance at 98.700.

After a rally from the July low of 96.377, the index failed to sustain momentum above this key technical level, closing at 98.462. The rejection near the 50-day SMA highlights the importance of this area, especially given prior lower highs at 99.421 and 100.540.

A downside break below minor support at 97.664 could open the door to renewed weakness, while a sustained move above the 50-day SMA would be needed to challenge the longer-term downtrend defined by the declining 200-day SMA at 103.55. The price action suggests consolidation as traders await further direction from Fed policy cues and inflation developments.

Market Forecast: Dollar Faces Pivotal Test at 98.950 as Fed Outlook Remains in Flux

The U.S. dollar enters a technically sensitive phase with DXY bulls capped at the 50-day SMA resistance at 98.700 and price rejection near the 98.950 level. The index’s failure to reclaim this area, coupled with fading momentum, points to consolidation risk unless a clean breakout materializes.

A downside break below 97.664 would shift focus back toward the July low at 96.377, while upside confirmation requires a sustained move through 99.421 and ultimately 100.540 to change the medium-term tone.

Fundamentally, the market remains split between inflation pressures linked to tariffs and growing evidence of labor market softening. Fed commentary and political overhang continue to introduce volatility, with futures now pricing in 45 basis points of cuts by year-end.

Traders should expect choppy conditions around key U.S. data and Fed remarks, with the dollar vulnerable to both growth surprises and shifts in policy rhetoric. The 50-day SMA remains the immediate battleground, with technical and macro catalysts now tightly aligned.

More Information in our Economic Calendar.