US Dollar Forecast: Will DXY Break 99.600? Powell’s Fed Update Holds the Key

Dollar Pauses After Four-Day Rally as Fed Decision and Mideast Conflict Weigh

The U.S. Dollar Index (DXY) is drifting lower on Wednesday after a four-day rally, reflecting short-covering from deeply oversold conditions. The index hit a multi-year low of 97.621 on June 13 and has since attempted a modest recovery. However, the sluggish pace suggests continued bearish sentiment, with the 50-day moving average at 99.600 acting as a crucial technical resistance.

At 15:00 GMT, the U.S. Dollar Index is trading 98.666, down 0.156 or -0.16%.

Geopolitical Risks: Israel-Iran Conflict Limits Dollar Gains

While the dollar typically strengthens in risk-off scenarios, this week’s conflict between Israel and Iran has created mixed safe-haven flows. Israel’s military operations aimed at Iran’s nuclear capabilities, along with increasing U.S. military presence in the region, have pushed investors toward the yen and Swiss franc, dulling the dollar’s appeal.

Although the greenback had gained around 1% against both currencies since last Thursday, it slipped 0.2% against the yen to 144.975 and fell to 0.81665 francs today. The euro and pound also advanced, rising 0.3% and 0.26%, respectively.

Federal Reserve: All Eyes on Powell and the Dot Plot

The Federal Reserve is widely expected to hold rates steady at its announcement today at 18:00 GMT, with FedWatch Tool pricing in a 99.9% probability. The focus will be on the dot plot and Chair Jerome Powell’s remarks.

Traders are looking for signs on whether recent inflation pressures—exacerbated by surging crude oil prices near $75/barrel—and geopolitical risks may influence future cuts. MUFG’s Derek Halpenny noted that while near-term selling pressure on the dollar is limited, markets could react more decisively once clarity on the Middle East situation emerges.

Treasury Yields Range-Bound Ahead of Fed

Treasury yields are slightly lower, reflecting cautious positioning ahead of the Fed decision. The 10-year note yield dropped 2 basis points to 4.365%, while the 2-year yield ticked down to 3.933%.

Yields fell further after housing starts for May missed expectations (1.256 million vs. 1.35 million forecast) and jobless claims came in just below estimates at 245,000. The bond market will be closed Thursday for the Juneteenth holiday.

Market Forecast: Cautious Dollar Outlook Below 50-Day Average

With DXY hovering near technical resistance and geopolitical risk muting traditional safe-haven inflows, upside for the dollar remains limited. Unless the Fed signals a notably hawkish stance or conflict escalation pushes investors back into the dollar, traders may see continued range-bound action. A clear break above the 99.600 level would be needed to revive bullish momentum. Until then, risks remain skewed to the downside.

More Information in our Economic Calendar.