US Dollar Forecast: DXY Slips as Traders Await Fed Rate Cut and Powell Guidance

Dollar Softens as Traders Brace for a Hawkish Cut

The U.S. Dollar Index edged lower Wednesday as markets positioned for the Federal Reserve’s final meeting of the year, where policymakers are expected to deliver a widely priced-in 25 bp rate cut to 3.5%–3.75% . For dollar traders, the key variable is not the cut itself but the tone Chair Jerome Powell adopts as he outlines whether policy is already restrictive enough or if further easing risks inflation backsliding.

At 14:28 GMT, DXY is trading 99.086, down 0.156 or -0.16%.

Treasury yields were mostly flat heading into the decision, with the 10-year holding near 4.178% and the 2-year near 3.602% . Steady yields limited support for the dollar early in the session, but traders expect rates to move once Powell clarifies how high the bar is for additional policy adjustment.

Fed Communication Sets the Dollar’s Path

Markets have assigned roughly a 90% probability of today’s cut, but the split inside the FOMC leaves room for volatility . Some members want to cushion a softening labor market—October hiring fell by 218,000 while layoffs rose by 73,000—yet inflation remains firm at 2.8% .

For FX markets, that tension raises the appeal of the term “hawkish cut”: a reduction accompanied by explicit messaging that further easing is unlikely soon.

A more cautious Powell would generally support the dollar by reinforcing the idea that U.S. real yields will not compress quickly. Conversely, any sign of comfort toward additional 2026 easing—investors currently expect two to four cuts—could undercut the greenback as rate differentials narrow.

Foreign Currencies React to Fed Rate Expectations

Cross-currency flows remain tied to whether the Fed signals a prolonged pause. A firm stance typically pressures higher-beta currencies and supports the dollar as investors rotate toward yield stability. But if Powell sounds more flexible, FX flows could shift back toward risk-sensitive pairs, weighing on the index.

Yields and Risk Sentiment Keep Dollar Traders Cautious

Equity markets remain resilient into December, which tempers haven demand for the dollar. Still, options markets reflect elevated uncertainty, with expected wide swings tied to the policy statement and Powell’s press conference .

Technical Levels Define Near-Term Bias

The DXY is struggling below the 50-day moving average at 99.223. A break above would open the door toward the 200-day MA at 99.406, the level identified as the trigger for upside acceleration. Failure to clear the 50-day leaves the index vulnerable to 98.765–98.565, with a break of 98.565 exposing 98.307–97.814 .

Market Forecast: Cautiously Bullish Dollar

Given the risk of a “hawkish cut” and the importance Powell may place on maintaining restrictive policy, the short-term bias leans modestly bullish for the dollar. Traders should expect two-sided volatility, but policy signaling still skews toward limited easing and firmer yield support.

More Information in our Economic Calendar.