US Dollar Forecast: DXY Slips as Fed Rate Cut Eyed and Euro Hit by France Downgrade

Dollar Slips as Central Bank Decisions Dominate Trader Focus

The U.S. dollar retreated slightly Monday as traders repositioned ahead of a key week for global central bank policy, with the Federal Reserve’s rate decision on Wednesday taking center stage.

The dollar index softened modestly, while yield markets remained relatively stable following recent volatility. Broader risk sentiment was influenced by a downgrade to France’s credit rating and expectations of diverging policy paths among major central banks.

Technically, the DXY is being capped by Fibonacci resistance at 97.859 and more importantly, the 50-day moving average at 98.199. Support is a pair of main bottoms at 97.253 and 97.109. Both are also potential trigger points for an acceleration into 96.377.

At 14:46 GMT, DXY is trading 97.441, down 0.174 or -0.18%.

Euro Faces Pressure After French Downgrade

The euro came under light pressure after Fitch Ratings downgraded France’s sovereign debt rating late Friday, citing a deteriorating fiscal outlook. While the move was broadly expected, it reinforces concerns about fiscal discipline within the euro area’s second-largest economy.

The euro edged lower against several major peers, including sterling and the yen, while slipping further against Scandinavian currencies. However, the reaction was restrained, suggesting the downgrade had been partially priced in.

Focus Turns to Federal Reserve and Policy Guidance

The Federal Reserve begins its two-day meeting Tuesday, with markets broadly expecting a 25 basis point interest rate cut. Treasury yields were little changed Monday, with the 10-year benchmark holding just above the 4% mark.

While the rate move itself is largely priced in, trader attention is squarely on the updated Summary of Economic Projections and the post-meeting press conference from Chair Jerome Powell. Markets are particularly sensitive to any revisions to growth and inflation forecasts, or shifts in the Fed’s tone on labor market risks.

Broader Central Bank Outlook Mixed

Beyond the Fed, investors are watching rate decisions this week from the Bank of Japan, Bank of England, Bank of Canada, and Norges Bank. The BoE is expected to hold rates steady, with attention shifting to its pace of balance sheet reduction.

The BoJ is also likely to keep policy unchanged, though traders will look for signs of any future tightening. These developments contribute to a complex backdrop of diverging monetary paths and evolving macroeconomic pressures.

Market Forecast

With a quarter-point cut expected from the Fed, the forward guidance and updated economic projections will be the decisive factor for dollar direction. A balanced tone may keep the dollar relatively supported, especially if other central banks remain cautious.

The euro’s upside is likely to be constrained by fiscal concerns in the eurozone, while broader G10 FX will respond to rate differentials and global growth sentiment. For dollar index traders, the outcome of this week’s central bank decisions will be critical in determining near-term trend continuation or reversal.

More Information in our Economic Calendar.