US Dollar Forecast: Gains Continue in DXY as Fed Stance Limits Easing Bets

Dollar Index Rebounds as Powell Pushes Back on Immediate Easing

The U.S. Dollar Index (DXY) rose sharply on Wednesday, advancing 0.52% to 97.745 and moving toward key resistance at its 50-day moving average (98.029) and the 50% retracement level (98.238). These technical markers are now immediate hurdles before DXY can challenge the dual tops at 98.635 and 98.834. The nearest support is seen at 97.199.

At 15:15 GMT, DXY is trading 97.841, up 0.626 or +0.64%.

Federal Reserve Stance Limits Downside for Dollar Bulls

The greenback found renewed strength after Fed Chair Jerome Powell reiterated a cautious stance on further rate cuts, signaling that policymakers remain concerned about inflation despite labor market softness.

Although markets are still pricing in two more 25 bp cuts by year-end, Powell’s remarks curbed dovish expectations. He warned that premature easing could reignite inflation pressures, while overtightening risked damaging employment — underscoring the Fed’s data-dependent path.

His comments aligned with the Fed’s earlier message, dampening market hopes for an aggressive policy pivot. Meanwhile, upcoming U.S. economic data — especially Friday’s PCE inflation print — is expected to be a key determinant for DXY direction. A softer-than-expected MoM reading of 0.2% could cement expectations for further rate cuts, according to ING strategist Francesco Pesole.

German Data and Weak Euro Offer Support to DXY

The euro dropped 0.5% to $1.1751 following a weaker-than-expected Ifo business climate survey in Germany, which slipped to 87.7 from 88.9. The poor data added to concerns over Eurozone economic fragility, amplifying investor demand for the dollar as a safe haven.

Sterling also slid 0.4% to $1.3467, though it held relatively steady against the euro.

Treasury Yields Tick Higher as Data Eyes Turn to Inflation

U.S. Treasury yields edged higher, with the 10-year at 4.129% and the 2-year at 3.592%, as traders positioned ahead of Friday’s PCE report and Thursday’s GDP revision. A stronger-than-expected 800,000 print for new home sales added to bullish sentiment in yields. Still, ongoing concerns about a possible U.S. government shutdown next week also loom, raising volatility risks.

Market Forecast: Resistance Cluster Ahead of PCE Data

DXY now faces a key resistance zone between the 50-day moving average at 98.029 and the 50% retracement level at 98.238. A break above this area could expose the dual tops at 98.635 and 98.834.

With traders awaiting Friday’s PCE inflation release, a soft print could reinforce expectations for two rate cuts and stall upside momentum.

For now, Powell’s hawkish restraint and weak Eurozone data support a cautiously bullish outlook for the U.S. dollar.

More Information in our Economic Calendar.