US Dollar Forecast: DXY Rises Toward 200-Day MA as Fed Pause and Tariffs Drive Demand

U.S. Dollar Index Closes Higher as Fed Pause and Tariff Concerns Bolster Safe-Haven Appeal

The U.S. Dollar Index (DXY) closed out the week with a three-day rally, posting its first weekly gain this month. After finding support at 103.197, the index reclaimed key technical levels, including former Fibonacci support at 103.984 and a previous main top at 104.091, turning the short-term trend higher. The rally was supported by broader macro developments, including central bank policy decisions, Treasury yield movements, and renewed geopolitical risk from U.S. trade tariffs.

Fed Holds Rates, Signals Cuts, but Market Focus Shifts to Tariff Impact

The Federal Reserve held its benchmark rate steady at 4.25%-4.5% and reiterated its projection for two rate cuts later this year. However, Chair Jerome Powell struck a cautious tone, citing potential delays in achieving price stability due to incoming tariff-related inflation. Chicago Fed President Austan Goolsbee echoed the sentiment, highlighting the uncertainty around the economic impact of President Trump’s tariff policy. The DXY found support from this shift in tone, as markets recalibrated expectations for policy easing in the context of rising cost pressures.

10-Year Yields Tick Up, Supporting the Dollar

The 10-year U.S. Treasury yield rose to 4.25%, reflecting market uncertainty over the economic outlook. The uptick in yields helped underpin the dollar’s strength, especially as the Fed signaled a pause rather than an imminent rate-cut cycle. Meanwhile, the 2-year yield remained relatively stable at 3.95%, suggesting limited near-term rate volatility.

Euro and Sterling Retreat as Traders Book Gains

EUR/USD fell 0.3% to 1.0822 on Friday, putting the pair down 0.6% for the week. Traders took profits after a strong euro rally earlier this quarter, with limited market response to Germany’s approval of a 500-billion-euro infrastructure fund. Convera’s George Vessey noted that sentiment may have reached “peak optimism” on the euro’s fiscal tailwinds. GBP/USD also slipped 0.3% to 1.293 after the Bank of England kept rates steady and warned against assumptions of further easing.

Market Forecast: Resistance Looms for DXY

With the short-term trend now bullish, the DXY is poised to test the 200-day moving average at 104.946, with additional resistance at 105.167. This zone represents a key inflection point; sellers are likely to re-engage if the index stalls near this area.

A sustained close above the 200-day average would be required to confirm a longer-term reversal. Until then, this move is viewed as a counter-trend rally within a broader downtrend. Traders will look to upcoming data — including GDP, PCE inflation, and housing — for confirmation of Fed policy direction and dollar momentum.

More Information in our Economic Calendar.