US Dollar Forecast: DXY and Gold Steady Amid Fed Decision and Trump’s Trade Policies

Dollar Holds Firm as Traders Await Powell’s Guidance on Rate Cuts

The U.S. dollar steadied on Wednesday as traders positioned ahead of the Federal Reserve’s policy decision, looking for signals from Fed Chair Jerome Powell on whether interest rate cuts are on the horizon. While no changes are expected, Powell’s comments could provide insight into how the Fed views inflation and economic uncertainty.

With inflation still above the Fed’s 2% target and trade policy risks looming, Powell must balance market expectations for rate cuts with economic data. Investors will closely analyze his remarks for any shift in policy stance.

At 15:53 GMT, the U.S. Dollar Index is trading 107.970, up $0.055 or +0.05%.

Dollar Index Holds Gains as Markets Await Clarity

The dollar index (DXY) edged up 0.2% to 108.13, recovering from Monday’s one-month low of 106.969. Earlier in the week, safe-haven flows into the Japanese yen and Swiss franc followed a selloff in technology stocks, but the dollar remains up over 4% since November’s election, reflecting its resilience.

In Forex markets, the euro slipped 0.3% to $1.0382, while the pound fell 0.24% to $1.2393. The yen strengthened slightly, with USD/JPY just below 155.40 as traders assessed policy signals from both the Federal Reserve and the Bank of Japan.

Fed’s Inflation Outlook in Focus

The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, due Friday, could influence expectations for rate cuts. A hotter reading could delay easing, strengthening the dollar, while a weaker number would reinforce market bets on policy loosening, boosting risk assets.

Markets currently price in two 25-basis-point rate cuts this year but do not expect the first move until June. Any mention of inflation persistence, wage growth, or labor market strength could shift sentiment.

Gold Steady as Investors Assess Trade and Fed Risks

Gold prices held steady as traders awaited the Fed’s decision and monitored President Trump’s trade policies. Last week, gold neared record highs after Trump called for rate cuts, but prices fell Monday as a stock selloff, driven by concerns over Chinese AI model DeepSeek, led to liquidation in bullion.

Trump’s tariff plans on Canada and Mexico add uncertainty. If enacted, these measures could stoke inflation and impact the Fed’s policy path, further supporting gold as a hedge.

Market Forecast: Powell’s Tone to Set Dollar’s Direction

Powell’s remarks will determine the dollar’s next move. A hawkish tone—stressing inflation risks—could push Treasury yields higher, lifting the dollar while pressuring equities and gold. A dovish signal acknowledging downside risks could weaken the greenback and boost risk assets.

With uncertainty around trade policy and fiscal stimulus, investors are likely to hedge by balancing defensive assets with growth plays. Powell’s comments will set the near-term tone, with Friday’s inflation data as the next key catalyst.

More Information in our Economic Calendar.