US Dollar Forecast: DXY Stable After 3-Year Low on IMF Downgrade, Trade Risks

Dollar Under Fire as Political Pressure Mounts on Fed and Trade Risks Deepen

The US Dollar Index (DXY) remained pinned near a three-year low, as heightened political interference in monetary policy and trade uncertainty continue to erode investor confidence. President Donald Trump’s public rebuke of Federal Reserve Chair Jerome Powell, labeling him a “major loser,” rattled markets and reignited concerns over the Fed’s independence—a foundational pillar of dollar strength.

At 13:17 GMT, the U.S. Dollar Index is trading 98.611, up 0.290 or +0.29%.

Technical Pressure Meets Political Uncertainty

The DXY is entrenched in a bearish trend, trading below both its 50-day (104.052) and 200-day (104.598) moving averages. While some technical traders view current levels as “oversold,” setting the stage for a potential relief rally, the next downside target at 97.685 is within reach if political risk persists. Resistance is noted at 99.578.

Markets are increasingly pricing in a possible Fed leadership change or policy shift under Trump’s influence, despite Powell’s assertion that he would not resign voluntarily. The legality of a presidential removal of a Fed chair remains unclear, but the uncertainty is enough to spook dollar bulls.

IMF Downgrades Underscore Growth Headwinds

The International Monetary Fund slashed its 2025 US growth forecast to 1.8%, down 0.9 percentage points from January, citing tariff-related shocks. The April 2 “reciprocal tariffs” announcement by the White House has already shaved 9% off the S&P 500 and spurred retaliatory moves from trading partners.

Inflation expectations have also been revised higher, with US headline inflation forecasted above 2%, driven by stubborn service-sector pricing and the cost impact of tariffs. IMF officials noted that tariffs could weigh on US productivity and, over time, pressure the dollar lower in real terms.

Treasury Market Signals Caution

US Treasury yields showed signs of stabilization after recent volatility, with the 10-year yield near 4.3988% on Tuesday. While some selling from Japanese investors was confirmed, the scale was not enough to explain the broader yield spike, suggesting domestic policy risks are a larger concern.

With Fed credibility under fire and recession risks climbing—JPMorgan estimates a 90% probability in 2025 if policies remain unchanged—the dollar’s safe-haven appeal is being reevaluated.

Outlook: Dollar Faces Sustained Pressure Without Policy Reversal

Unless the administration tones down its campaign against the Fed and revisits its tariff strategy, the dollar remains vulnerable. Technical support may offer short-term relief, but macro forces are firmly bearish. Further deterioration in Fed independence or escalation in trade tensions could drive DXY below 98, with limited near-term catalysts for recovery.

More Information in our Economic Calendar.