US Dollar Forecast: DXY Stabilizes as Fed Rate Cut Expectations Pressure Prices

Dollar Finds Its Feet Late Week — But Sellers Still Lurking

The U.S. Dollar Index is a touch firmer into Friday’s close, but this still feels like stabilization rather than a turn. After Wednesday’s sharp dump and a follow-through slide Thursday, the dollar tagged its weakest level since October 17 before finally finding a floor near 98.134. Buyers showed up just enough to reclaim the 50% retracement at 98.307, helping the index limp higher into the weekend.

That bounce looks more like position-squaring than fresh conviction. The dollar is still staring at a third straight weekly loss, and the broader tone remains defensive as traders lean into a slower Fed and softer U.S. growth story.

Fed Cuts, Mixed Messaging, and Why It Matters

The Fed delivered its expected rate cut this week, but the real damage to the dollar came from the messaging. Chair Powell struck a less hawkish tone than some had positioned for, reinforcing the idea that policy is no longer restrictive enough to keep the dollar bid on rallies. Lower expected policy rates reduce the return advantage on U.S. assets, and that’s been a steady headwind for the index.

Uncertainty around the 2026 rate path is keeping sellers engaged. Traders are pricing two cuts next year, while Fed projections point to fewer, creating an ongoing tug-of-war that’s capping any meaningful dollar rebound. Political noise around Fed leadership and pressure for easier policy is adding another layer of discomfort, even if it’s not yet fully priced.

Foreign Currencies Keep the Pressure On

Cross-currency flows haven’t helped the greenback. The euro held near recent highs, while sterling eased only modestly despite weak UK GDP data, leaving both currencies on track for another weekly gain versus the dollar.

The yen remains a wild card, with USD/JPY ticking higher ahead of the Bank of Japan meeting, but expectations for further BOJ hikes continue to limit dollar upside on that front.

Bottom line: foreign currencies aren’t breaking down, and that keeps dollar rallies shallow.

Yields Bounce, Risk Still Cautious

Treasury yields rebounded Friday after a two-day slide, with the 10-year jumping back above 4.19% as Goolsbee urged caution on cutting too fast. Higher long-end yields can support the dollar by lifting relative returns, but the mixed move across the curve suggests bond traders aren’t fully sold on a sustained hawkish turn.

Risk appetite remains tentative. Traders are selective, not chasing.

Technicals Flash Caution Signs

Technically, the picture stays fragile. The index reclaimed the 50% level at 98.307, but failure there would reopen downside toward the 61.8% retracement at 97.814. Overhead, the 50-day moving average at 99.238 and the 200-day at 99.346 remain firm resistance. With the 200-day sloping down and the 50-day sloping up, a bearish crossover is looming — not a signal traders ignore lightly.

Short-Term Outlook: Stabilizing, Not Reversing

Near term, the dollar looks like it wants to pause rather than rip higher. Unless yields extend their rebound and Fed rhetoric firms up, rallies toward the moving averages are likely to attract sellers. For now, stabilization beats capitulation — but the burden of proof is still on the bulls.

More Information in our Economic Calendar.