US Dollar Forecast: DXY Risks Sharp Drop Ahead of Retail Sales Data

U.S. Dollar Weakens Ahead of Retail Sales Data and Fed Decision

U.S. Dollar Index futures are trading slightly lower on Monday, confined within a key technical zone between 103.373 and 103.984. Traders are eyeing last week’s low at 103.220; a decisive break below this level could trigger significant downside momentum, targeting support between 100.157 and 99.482. Conversely, a rally above 104.091 would shift sentiment, potentially pushing the index towards the 200-day moving average at 104.073.

The dollar remains under pressure, largely due to investor caution as markets await February’s U.S. retail sales report, scheduled for release at 11:30 GMT. Economists polled by Dow Jones forecast a 0.6% rise, which would signal continued consumer resilience. A strong reading could ease recession fears temporarily, but weakness in this key indicator may heighten concerns about the U.S. economy’s health.

At 12:23 GMT, the U.S. Dollar Index is trading 103.555, down 0.179 or -0.17%.

Treasury Yields Mixed, Economic Concerns Persist

Ahead of the retail sales data, Treasury yields are mixed, reflecting investor uncertainty. The benchmark 10-year Treasury yield slipped by over two basis points to 4.281%, while the 2-year yield remained steady at 4.015%. This cautious stance underscores market unease as recession risks increase amid escalating concerns around U.S. economic policies and tariff developments.

Adding to economic uncertainties, recent statements by U.S. Treasury Secretary Scott Bessent have done little to reassure investors. He emphasized that there are “no guarantees” against recession, a sentiment exacerbated by volatile tariff policies and weakening economic indicators.

Fed Decision in Focus

Traders are also closely monitoring the upcoming Federal Reserve policy meeting set for Wednesday. Although the CME Group FedWatch tool shows a 99% probability that the Fed will leave interest rates unchanged, markets will scrutinize Chair Jerome Powell’s post-meeting comments for any indications of policy direction.

Powell has consistently downplayed expectations for rate cuts, reinforcing the Fed’s cautious approach amid conflicting economic signals. Market volatility could rise if Powell signals increased concern about growth or inflation risks, particularly given recent market sensitivity to U.S. policy developments.

Market Forecast: Dollar Likely to Remain Under Pressure

Given current market conditions and technical indicators, the U.S. dollar is likely to remain in a “sell the rally” environment unless buyers decisively reclaim the 200-day moving average. Traders should brace for potential volatility following retail sales data and Fed commentary, as uncertainty surrounding U.S. economic policy continues to weigh on investor confidence.

More Information in our Economic Calendar.