US Dollar Forecast: DXY Rises Toward Key Resistance as Fed’s Dovish Pivot Looms

US Dollar Index Rises as Traders Anticipate Fed’s Dovish Pivot

The U.S. Dollar Index (DXY) edged higher on Wednesday, supported by bullish momentum near the key resistance level of 106.843. Traders are positioning ahead of next week’s Federal Reserve meeting, where a widely anticipated 25-basis-point rate cut is expected. November’s CPI data has reinforced expectations of a shift in the Fed’s policy stance.

CPI Data Supports Rate Cut Expectations

November’s Consumer Price Index (CPI) increased by 0.3%, the largest monthly rise since April, driven by higher costs for food and lodging. Year-over-year inflation climbed to 2.7%, up from October’s 2.6%, but still well below the 2022 peak of 9.1%. A notable slowdown in shelter inflation, particularly owner-equivalent rent, offered a positive signal for price stability.

The in-line CPI figures have bolstered market confidence in a December rate cut, with analysts such as Morgan Stanley’s Ellen Zentner suggesting the Fed has room to ease monetary policy while remaining watchful of persistent inflation risks in certain sectors.

Labor Market and Sticky Inflation Add Complexity

The labor market showed mixed signals in November, with job growth rebounding but the unemployment rate rising to 4.2%. Sticky inflation in core categories such as services and food continues to present challenges for the Fed’s long-term policy objectives.

Economists expect the Fed to pair its dovish pivot with cautious guidance, signaling a measured approach to future rate cuts. Policy uncertainty under President-elect Trump, including potential tariff-related price pressures, may also influence the Fed’s strategy moving forward.

Technical Levels Signal Key DXY Trends

The DXY is testing a significant resistance pivot at 106.843. A sustained breakout could drive the index toward the multi-year high of 108.071. On the downside, immediate support lies at 105.722, with further losses targeting the 50-day moving average at 104.909 and the 200-day moving average at 104.112.

Investors are weighing optimism over cooling inflation drivers against concerns about persistent price pressures. A decisive move above resistance would confirm bullish momentum, while failure to hold support levels may signal further weakness.

Market Forecast

The DXY appears poised for moderate gains in the short term as the Fed prepares for a dovish pivot. A break above 106.843 could fuel further upside, though ongoing inflation concerns may limit the rally’s scope. Looking ahead, the January FOMC meeting and additional labor market data will be crucial in shaping the dollar’s outlook, with traders monitoring for evidence of sustained disinflation.