US Dollar Forecast: Threatening Key Support as Fed Rate Cut Bets Strengthen

Dollar Pressured as Rate Cut Bets Mount, Risk Sentiment Improves

The U.S. Dollar Index (DXY) extended its decline on Wednesday, slipping below key Fibonacci support at 98.714 as traders sharpen bets on Federal Reserve rate cuts and global risk sentiment lifted demand for riskier currencies. The break below the four-day consolidation range exposes DXY to deeper losses, with traders eyeing 98.238 and the 50-day moving average near 98.025 as critical support levels.

At 15:54 GMT, DXY is trading 98.767, down 0.265 or -0.27%.

Fed Signals Fuel Cut Expectations

The primary drag on the greenback came from Federal Reserve Chair Jerome Powell, who reaffirmed a dovish stance during a Tuesday speech, citing persistent labor market stagnation and a lack of hiring momentum.

With official data unavailable due to a prolonged U.S. government shutdown, Powell’s comments left markets confident the Fed can proceed with easing.

Fed funds futures now fully price a quarter-point cut at both the October 28–29 and December meetings, with further easing expected in 2026, according to LSEG data.

Risk Rally Erodes Dollar Safe-Haven Appeal

Stronger equity sentiment in both Europe and the U.S. also pulled capital away from the dollar. A rebound in S&P 500 performance and solid corporate earnings reports improved investor appetite for equities.

ING’s Francesco Pesole noted that as risk assets recovered from recent pressure, capital rotated out of the dollar. Meanwhile, the STOXX 600 gained 0.8% on earnings optimism and political stabilization in France, which helped the euro rise for a second consecutive session, reaching $1.1635.

Crosses Strengthen Against Greenback

The yen and Australian dollar also posted gains, recovering from last week’s sharp selloffs. The yen strengthened despite political uncertainty in Japan, while the Australian dollar benefitted from stronger regional equities.

Sterling added 0.6% to $1.3393 following reassurances from UK finance officials about upcoming fiscal plans. These currency moves contributed to the DXY’s 0.33% drop to 98.711, extending losses from Tuesday.

Bond Market Holds Steady as Trade Tensions Simmer

Treasury yields held mostly flat, reflecting a cautious stance by bond traders despite ongoing U.S.–China tensions. The 10-year yield ticked down to 4.009%, while the 2-year held near 3.487%. Investors are tracking fresh threats from President Trump on trade sanctions and China’s response with targeted measures against U.S. firms.

Short-Term Forecast: Bearish Bias for DXY

With the DXY now testing major retracement levels and no imminent support before the 50-day MA at 98.025, sentiment has clearly turned negative. Unless the dollar finds a bounce at that level, a deeper correction toward 97.412 remains on the table, particularly as rate cut expectations firm and risk appetite stays elevated.

More Information in our Economic Calendar.