US Dollar Forecast: DXY Tests Bearish Reversal Setup as Traders Eye PCE Data

Fed Commentary and PCE Data in Focus as Rate Path Uncertainty Grows

The U.S. Dollar Index (DXY) edged lower on Monday as traders turned cautious ahead of a series of speeches from Federal Reserve officials and the release of the core PCE deflator — the Fed’s preferred inflation gauge — on Friday. The index had posted gains last week on the back of firm U.S. data and rising Treasury yields, but bullish momentum faded as rate expectations wavered.

At 15:51 GMT, the DXY is trading 97.493, down 0.153 or -0.16%.

Last week’s 25 basis point Fed rate cut — the first of the year — was largely priced in. However, Fed speakers have since pushed back against aggressive easing. St. Louis Fed President Alberto Musalem, a voting member this year, said there is “limited room” for further cuts without risking policy becoming too accommodative. He cited supportive financial conditions and ongoing concerns over inflation risks, particularly from tariffs.

Treasury Yields Steady as Traders Await Key Inflation Reading

U.S. Treasury yields were little changed, with the 10-year yield holding at 4.145%. The 2-year ticked up slightly to 3.597%, while the 30-year rose to 4.772%. Deutsche Bank expects a softer-than-feared PCE print based on recent inflation inputs, potentially reducing pressure on the Fed to act again soon. The market continues to price in two additional cuts this year, but upcoming data and Fed commentary will determine the final path.

Atlanta Fed President Raphael Bostic, though not a voter this year, echoed caution, saying he does not currently support additional rate reductions. Market participants will watch closely as Fed Chair Jerome Powell speaks Tuesday, offering a potential signal on how the central bank is weighing inflation risks versus labor market softening.

Technical Levels: DXY at Risk of Bearish Reversal

The DXY is testing key technical levels, with a potential bearish closing price reversal top forming. If confirmed, this could trigger a retracement to the 50% support level at 97.021. On the upside, resistance remains firm at the 50-day moving average at 98.070 and pivot resistance at 98.238.

Sterling Recovery Capped by UK Fiscal Risks

Sterling gained 0.2% to $1.3496 on Monday as the dollar paused, though broader concerns remain. UK borrowing has outpaced fiscal forecasts, raising the stakes for the upcoming November budget. Analysts warn that monetary policy is no longer a primary driver for GBP, as vulnerabilities in the labor market and external imbalances weigh on sentiment. Citi expects Tuesday’s UK PMI data to disappoint, particularly in manufacturing.

Market Forecast: DXY Range-Bound as Fed and Inflation Data Take Center Stage

The U.S. Dollar Index is likely to consolidate in the near term, with directional bias hinging on Friday’s PCE inflation data and Powell’s remarks. A softer inflation print may prompt modest dollar weakness, but resistance near 98.238 will be a key test for bulls if yields hold firm.

More Information in our Economic Calendar.