US Dollar Forecast: Gold Rises While DXY Holds as Fed Minutes Loom

Dollar Index Steadies Near Critical Pivot as Traders Weigh Risks

The U.S. Dollar Index (DXY) hovered near the 107.091 pivot level for the second consecutive session on Tuesday, as markets evaluated President-elect Donald Trump’s proposed tariff measures and awaited key Federal Reserve meeting minutes. The index, which measures the dollar against a basket of six major currencies, continues to trade above significant support levels, reflecting an overall bullish trend despite near-term uncertainty.

Key Levels in Focus: 107.091 Pivot Holds the Spotlight

Traders are closely monitoring 107.091 as a critical level. A sustained move above it could encourage buyers to push the index toward resistance at 107.993 and 108.071. Conversely, a decline below the pivot would likely bring bearish pressure, with the index potentially targeting support levels at 106.11 and 105.722. The index’s position above its 200-day moving average (103.987) and 50-day moving average (103.727) underscores its intermediate- and long-term upside bias.

Treasury Yields Rise Ahead of Fed Minutes

U.S. Treasury yields edged higher as market participants anticipated the Federal Reserve’s latest meeting minutes and other key data points later this week. Investors are particularly focused on insights regarding future monetary policy direction, given the Fed’s recent interest rate cuts and a final meeting scheduled for December. Current market pricing suggests a 56% probability of another rate cut, with a 44% likelihood of rates remaining unchanged.

Economic Data and Trump’s Tariff Plans Shape Sentiment

Additional economic releases, including consumer confidence data for November and October’s new home sales figures, are expected to provide further clarity on the U.S. economic outlook. Inflation data, particularly the Personal Consumption Expenditure (PCE) Price Index due Wednesday, could significantly influence the Fed’s next moves, as the PCE is its preferred inflation gauge.

President-elect Trump’s proposed tariffs also weighed on sentiment. Measures include a 25% tariff on goods from Mexico and Canada, with additional levies on Chinese imports. The Canadian dollar fell to its weakest level since April 2020, trading at $1.4177 against the U.S. dollar, while the Mexican peso dropped over 1%, trading at 20.75. In contrast, the dollar lost ground to the euro, yen, and British pound—key components of the Dollar Index—while gold rebounded on the weaker greenback despite rising Treasury yields.

Market Forecast: Cautious Optimism with Upside Potential

The Dollar Index remains supported by its strong technical foundation and expectations for higher U.S. yields. However, trade policy uncertainty and upcoming economic data may drive volatility. Near-term, the index is likely to test the 107.993 resistance if buyers maintain control, while a break below 107.091 could shift momentum toward bearish targets. Traders should remain vigilant, monitoring data releases and geopolitical developments closely.

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