US Dollar Forecast: DXY Slips as Trump’s Fed Interference Shakes Confidence

Political Interference Pressures the Greenback

The US Dollar Index (DXY) edged lower on Tuesday, falling 0.23% to 98.21 after President Donald Trump announced his intention to remove Federal Reserve Governor Lisa Cook—an unprecedented move that’s reignited concerns over the Fed’s independence. The euro gained to $1.1654, sterling traded at $1.3491, and the dollar slipped against both the yen (147.41) and Swiss franc.

Trump alleged improprieties in Cook’s mortgage disclosures, but the governor pushed back, insisting the president lacks the authority to fire her. The political overhang sent traders scrambling to price in the risk of a more compliant Fed Board—and potentially faster rate cuts. Goldman Sachs warned that such a challenge to the Fed’s autonomy could weigh on the dollar via both institutional credibility and the signal it sends on front-end yield direction.

Yields Send Mixed Signals: Near-Term Drops, Long-Term Rises

Bond markets echoed the uncertainty. The yield on 2-year Treasuries fell to 3.694%, reflecting rising bets on near-term rate cuts. Meanwhile, the 10-year yield ticked up to 4.287%, and the 30-year yield rose to 4.939%, steepening the curve. This suggests the market sees short-term easing ahead, but questions whether the Fed will remain anchored on inflation control longer out.

Morgan Stanley joined the rate-cut chorus on Tuesday, projecting easing in September after Chair Powell’s dovish hints last week. Money markets are now pricing in an 81% probability of a cut at that meeting.

DXY Chart: Consolidating Below Key Resistance

From a technical standpoint, DXY continues to consolidate above the 50-day moving average at 98.10 but in a tight range between 97.56 support and 98.83 resistance. Bulls briefly pushed through 100.25 earlier this month, but failed to hold the move, and the index has since struggled to reclaim 99.32, let alone test the longer-term ceiling at 99.84.

The 200-day moving average, sitting well above at 102.75, remains a critical upside threshold that the dollar hasn’t come close to challenging since June. Until we break out of this current chop zone, it looks like the market’s working off some of the excess from that early-August pop.

Outlook: Dollar Looks Vulnerable but Supported for Now

Bottom line: The dollar’s facing some real headwinds from political risk, but it’s not falling apart. The 97.55 area is acting as a decent floor, and sellers haven’t been able to crack it. A clean break below that opens the door back to 96.38, while upside remains capped unless we see a close above 98.83 and follow-through toward 99.84.

With the PCE inflation data due later this week, we’ll see how that plays out. But more likely than not, this dollar pullback has less to do with fundamentals and more to do with institutional trust. And that’s not the kind of thing that fixes itself in one session.

More Information in our Economic Calendar.