US Dollar Forecast: Pullback Continues as Fed Uncertainty and China Trade Weigh

Fed Uncertainty and Soft Labor Data Stall Dollar Rally

The U.S. Dollar Index (DXY) is set to end the week nearly unchanged, last quoted down 0.20% at 99.495, as investors balanced a hawkish Federal Reserve against signs of slowing economic momentum.

The index had extended a five-day winning streak into early November, driven by Fed Chair Jerome Powell’s warning about the risks of easing too soon. But that rally reversed sharply Thursday after soft labor market data dampened expectations for a December rate move.

Traders are now reacting to Powell’s prior comments with increased sensitivity, particularly in light of the delayed non-farm payrolls report caused by the prolonged U.S. government shutdown.

With December’s rate decision still a coin toss, market participants are leaning on private sector employment data, which showed job losses in both government and retail sectors last month. Cost-cutting and AI-driven layoffs are adding further pressure to labor market sentiment.

Technical Signals Point to Short-Term Weakness

Technically, the dollar index remains in a corrective phase. The short-term trend remains up after the index broke above the 50-day moving average at 98.391 in early October. However, the longer-term trend remains down, as the rally stalled at the 200-day moving average, tested at 100.360 on November 5. This level has proven to be a cap for bullish momentum.

With the index pulling back since that rejection, today’s intraday test of 99.463 marked the first key downside target in this correction. Traders now see the index locked between well-defined moving averages, awaiting a stronger catalyst to break the range that’s held since August.

China Export Drop Adds to Global Demand Concerns

Weakness in China’s October trade data added another layer of caution. Exports posted their steepest drop since February, raising questions about global demand and Beijing’s ability to diversify away from U.S. markets. That uncertainty has spilled into European outlooks, with the euro gaining 0.35% to $1.15868 on stable rate expectations, even as broader global growth questions remain unresolved.

Safe-Haven Flows Show Mixed Preferences

While the dollar retained some safe-haven appeal, the Japanese yen has reasserted itself as the market’s preferred defensive currency. The dollar rose modestly to 153.27 yen, rebounding from earlier lows, but expectations that the Bank of Japan will hold rates at 0.5% until at least May 2026 limit the upside in USD/JPY. Broader safe-haven flows have also increased, with tech-heavy equity markets heading for their worst weekly performance in seven months.

Outlook: Neutral Bias with Correction Still in Play

With Powell signaling a high bar for further rate cuts and the labor market under scrutiny, the short-term outlook for the U.S. dollar remains neutral.

The index remains stuck in its multi-month range, and unless upcoming data decisively shifts sentiment on Fed policy or growth, the correction from November’s high near 100.360 may continue to unfold.

A sustained break below 99.463 could open the door to further weakness.

More Information in our Economic Calendar.