US Dollar Forecast: DXY Trapped by MAs as Traders Make a Big Bet on a Dovish Fed

Dollar Holds Steady as Traders Bet Big on a Dovish Fed

The U.S. Dollar Index is holding near 99.440 at the mid-session on Tuesday as traders weigh firm expectations for a December Fed rate cut against uneven Treasury yield signals. Price action stays tight inside a narrow intraday band, and flows remain cautious ahead of delayed U.S. economic releases and next week’s FOMC meeting. The year-long slide in the dollar continues to steer positioning, keeping upside attempts contained even as some traders pare back shorts ahead of the event risk.

At 18:34 GMT, DXY is trading 99.445, up 0.038 or +0.04%.

Rate-Cut Momentum Becomes the Market’s Driving Force

Fed expectations are steering the move. Markets now price an 87% chance of a 25-bp cut in December—up from roughly 63% a month ago—after NY Fed President Williams said policy remains “modestly restrictive,” suggesting room to shift toward neutral. Lower expected rates reduce the relative return on U.S. assets, and that typically weighs on the DXY when traders increase confidence in easing.

Forecasts across Wall Street have flipped in the same direction. BofA now leans toward a December cut, citing the jump in unemployment, soft private hiring, and Powell’s unwillingness to counter dovish pricing. That alignment tends to strengthen the market’s conviction and encourages additional unwinding of dollar exposure.

Fiscal uncertainty adds another drag. The $4.1 trillion tax package, tariff uncertainty, and questions over Fed independence have cooled foreign appetite for U.S. assets, reducing inflows that normally help support the dollar.

Seasonal FX Flows Tilt Away From the Dollar

Cross-currency flows add pressure. European investors have been shifting toward local assets, trimming U.S. demand. December seasonality typically reinforces dollar softness as EUR/USD tends to firm and USD/JPY tends to slip, a pattern that can weigh further on the DXY when fundamentals already lean dovish.

Yields Send Mixed Signals — But the Front End Still Hurts the Dollar

Treasury yields continue to diverge. The 2-year near 3.53% has eased as traders lean into near-term cuts, while the 10-year around 4.10% and 30-year near 4.75% reflect lingering long-end concerns tied to inflation and fiscal stress. When the short end drops faster than the long end, the dollar often struggles to find support, and that’s been the case again this week.

DXY Squeezed Between Its 50-Day Floor and 200-Day Ceiling

The index remains trapped between 200-day moving-average resistance at 99.634 and 50-day moving-average support at 99.097. Price respecting both bands signals hesitation. A break above the 200-day would hint at fading bearish momentum; a drop through the 50-day would reopen the broader downtrend.

Dollar Still Looks Heavy Heading Into the Fed

Near-term bias stays soft. With the index capped by long-term resistance and fundamentals skewed toward easing, the dollar remains vulnerable unless incoming data challenges the dovish stance. The FOMC meeting will determine whether the DXY stabilizes or extends its 2025 slide.

More Information in our Economic Calendar.