US Dollar Forecast: DXY Vulnerable to Further Losses if ISM Data Misses Expectations

Dollar Edges Lower as Traders Eye Fed Outlook; Asia Moves Suggest Broader FX Realignment

The U.S. Dollar Index (DXY) softened Monday as traders positioned ahead of a pivotal Federal Reserve decision, while Asia-Pacific currencies climbed on speculation of regional currency revaluations. Market attention remains tightly focused on the Fed’s policy tone, incoming U.S. data, and evolving political pressure from the White House.

At 12:30 GMT, the U.S. Dollar Index (DXY) is trading 99.504, down 0.532 or -0.53%.

Technically, the DXY is down for a second session but holding pivot price support at 99.148 and last week’s high at 100.375.

A trade through 98.901 will shift momentum to the downside, while putting 97.921 in play. On the upside, a sustained breakout over 100.375 could fuel a move into 101.302.

Fed in Focus as Political Pressure Rises

The Fed is widely expected to leave its target range unchanged at 4.25%–4.50% this week, but traders are increasingly sensitive to any dovish shifts in tone. Chair Jerome Powell’s post-meeting press conference on Wednesday is expected to address both the economic outlook and ongoing criticism from President Trump, who recently intensified calls for rate cuts and again questioned Powell’s leadership.

Despite a stronger-than-expected April payrolls report, rate cut bets for June have slipped to 37%, down from 64% a month earlier. Treasury markets reflect this repricing: the 10-year yield held near 4.316% while the 2-year dipped to 3.805%. Economists from Goldman Sachs and Barclays now forecast the first potential cut in July instead of June.

Dollar Struggles Despite Solid Jobs Data

The dollar failed to capitalize on Friday’s employment strength, suggesting markets remain focused on downside risks. The ISM services report due later Monday is now in the spotlight. A weak reading could reignite fears of an economic slowdown, particularly with Trump and Treasury Secretary Bessent both pointing to the 2-year yield slipping below the Fed funds rate as a policy warning.

In G10 FX, USD/JPY fell 0.44% to 144.3, while EUR/USD firmed to 1.1232 and GBP/USD edged up to 1.3288. Sterling’s focus this week will be Thursday’s Bank of England meeting, where a 25 basis point cut is expected. Central banks in Sweden and Norway are likely to stay on hold.

Taiwan Dollar Surges as Regional Revaluation Talk Grows

While not part of the DXY basket, the Taiwan dollar’s explosive rally—over 7% in two sessions—sent a clear signal to global markets. Speculation is building that Taiwan’s central bank may be allowing appreciation under U.S. pressure tied to trade concessions. “Hot money is coming into Taiwan, and the central bank is allowing it,” said a senior Taiwanese finance executive, reinforcing speculation of geopolitical coordination.

The offshore Chinese yuan also climbed, briefly touching 7.1879 per dollar before easing. Despite some signals of resumed U.S.-China trade talks, negotiations remain distant.

Market Outlook: Dollar Faces Event Risk as Sentiment Shifts

The DXY remains vulnerable to near-term softness as traders brace for Powell’s remarks and key data. Unless the Fed surprises with a firmer stance or U.S. data comes in hot, the dollar could extend losses—particularly against low-yielding European currencies and the yen. Broader FX sentiment also leans dollar-negative, with regional strength in Asia and political interference risks weighing on confidence.

More Information in our Economic Calendar.