US Dollar Forecast: DXY Surges Toward 100.257 as Yen and Euro Slide on Policy Risks

Dollar Index Surges as Yen and Euro Weaken; Fed Signals Support Ongoing Rally

The U.S. Dollar Index surged 0.65% to 99.466 on Thursday, reaching its highest level since August 1, as the greenback gained across the board.

The Japanese yen continued to slide, touching its weakest level since mid-February at 153.236 against the dollar. Traders attributed the decline to policy concerns under Japan’s new ruling party leader, Sanae Takaichi, who signaled alignment between fiscal expansion and the central bank’s policy stance.

Despite a brief rally following Takaichi’s comments about avoiding “excessive” yen depreciation, uncertainty over her administration’s ability to deliver stimulus has pressured the yen. Analysts at Corpay noted that skepticism is growing around her capacity to pass fiscal measures or halt the Bank of Japan’s tightening plans, especially as domestic inflation remains high.

Euro Declines on French Political Instability

The euro dropped sharply to $1.1548, its lowest level since August 5, following the resignation of French Prime Minister Sebastien Lecornu and his cabinet earlier this week. Ongoing political paralysis has stalled efforts to pass a deficit-reducing budget, weighing on investor sentiment. Market participants now await President Macron’s next appointment, expected within 48 hours. The euro’s weakness added further support to the Dollar Index’s bullish momentum.

Fed Minutes Reveal Divided Views on Future Cuts

Hawkish undertones in the Federal Reserve’s September meeting minutes helped boost the dollar. While officials agreed on the need for rate cuts due to slowing labor market conditions, they remained cautious about inflation, reinforcing a wait-and-see approach. New York Fed President John Williams supported further cuts, citing risks to employment, but traders are scaling back expectations for multiple cuts. CME FedWatch pricing shows a 95% probability of a 25-basis-point cut at the October meeting, but odds for a December cut have eased to 80%.

Treasury Yields Steady as Shutdown Enters Ninth Day

Yields on U.S. Treasurys were little changed, with the 10-year holding at 4.136%. The ongoing U.S. government shutdown, now in its ninth day, is increasingly concerning investors. The IRS furloughed over 34,000 employees this week, and crucial labor market data remains delayed. However, a smooth 10-year bond auction on Wednesday suggests demand for U.S. debt remains intact—for now.

Market Forecast: DXY Eyes 100.257 as Key Resistance Zone

With the U.S. Dollar Index clearing 98.834, bulls are now targeting the August 1 peak at 100.257. Support rests between 98.714 and 98.238, with deeper buying interest near the 50-day moving average at 97.997. Continued yen weakness, euro instability, and Fed hesitation on aggressive easing could keep dollar strength intact. However, further upside may hinge on resolution of the U.S. shutdown and incoming economic data—once released.

More Information in our Economic Calendar.