US Dollar Forecast: DXY Slips as Fed Caution and Global FX Flows Pressure Greenback

Dollar Pulls Back as Recent Gains Stall

The U.S. Dollar Index slipped on Monday after failing to extend last week’s three-session advance. Traders trimmed exposure despite firmer Treasury yields, reflecting uncertainty around upcoming U.S. data releases and heavier FX flows elsewhere.

The inability to press higher reinforced near-term resistance and left the index vulnerable as cross-asset sentiment shifted toward non-USD opportunities.

At 15:32 GMT, DXY is trading 98.260, down 0.458 or -0.46%.

Fed Caution Limits Dollar Support Even as Yields Firm

Dollar softness developed in a session where yields pushed slightly higher, showing that relative returns were not enough to attract broader USD buying. Cleveland Fed President Beth Hammack reiterated that rates should stay unchanged for months because inflation risks still outweigh labor concerns. That message helped anchor yields but offered no new support for the dollar, as expectations for meaningful policy easing remain oriented toward mid-2026 instead of the front end.

U.S. data added little incentive for bullish positioning. CPI rose at a 2.7% annualized pace, continuing the cooling trend but not altering rate expectations. The Chicago Fed National Activity Index is projected at -0.4, reinforcing a picture of weaker momentum. Such readings reduce appetite for aggressive dollar accumulation.

Yen Pressure Intensifies While European Currencies Advance

Cross-currency flows worked against the DXY. Yen selling persisted even after the BOJ raised rates to 0.75%, as Governor Ueda’s cautious comments encouraged traders to extend bearish positions. Concerns tied to Prime Minister Takaichi’s spending plans added to downward pressure, keeping officials on intervention watch. The dollar traded near 157.05–157.37 yen, close to last month’s 157.90 high.

The euro strengthened to $1.1752 after the ECB held rates and signaled no early cuts. Sterling climbed to $1.3443 following last week’s BOE cut, supported by guidance indicating limited additional easing. These moves weighed on the DXY as broad-based dollar selling returned.

Yields Tick Higher Ahead of Heavy Auction Calendar

Treasury yields edged higher across the curve, with the 10-year near 4.157% and the 2-year around 3.496%. This week’s auctions for 2-, 5-, and 7-year notes will offer a read on demand, inflation expectations, and investor appetite heading into 2026. Higher yields typically support the dollar by improving relative returns, but the absence of stronger Fed follow-through limited that effect.

Technical Levels Signal Mounting Downside Pressure

Friday’s high at 98.749 set a new minor top, with additional resistance at the 50% level of 98.591. The index is testing a long-term 50% level at 98.307. A sustained break below 98.307 could expose the December 16 main bottom at 97.869, followed by the 61.8% level at 97.814.

Short-Term Outlook: Bias Turns Bearish

With resistance intact, cross-currency pressure building, and fundamentals offering limited support, the near-term DXY view tilts bearish unless upcoming U.S. data or auction demand reinvigorates dollar buying.

More Information in our Economic Calendar.