US Dollar Forecast: Reaction to 99.10 Sets the Tone on Powell Relief and Tariff Optimism

Dollar Stabilizes After Volatile Swings as Fed and Trade Sentiment Calms Nerves

The U.S. Dollar Index (DXY) steadied midweek following sharp volatility that took it to a three-year low of 97.921 before a swift rebound. Traders are reassessing risk as President Trump backpedaled on recent threats to remove Fed Chair Jerome Powell, while optimism grew over a potential softening in U.S.-China trade tensions.

At 12:54 GMT, the US Dollar Index (DXY) is trading 99.125, down 0.516 or -0.52%.

Fed Stability and Treasury Moves Offer Relief

Investor anxiety cooled after Trump clarified Tuesday that he has “no intention” of firing Powell, alleviating concerns around central bank independence. The 10-year Treasury yield dropped 8 basis points to 4.311%, reflecting a modest return to safety. The 2-year yield ticked up slightly, showing market skepticism over short-term policy shifts.

White House officials also moved to temper the fallout, with economic adviser Kevin Hassett dismissing speculation over Powell’s job security. This reversal follows a turbulent start to the week, including Trump labeling Powell a “major loser” over rate policy. The market interpreted the president’s latest remarks as a tactical retreat, stabilizing DXY in the process.

Trade Signals Lift Dollar Confidence

Sentiment was further buoyed by comments from Treasury Secretary Scott Bessent, who hinted at a “substantial” cut in tariffs should a U.S.-China deal materialize. Trump echoed this sentiment, stating that final tariff rates “won’t be zero” but could be significantly reduced. With trade discussions ongoing, 34 nations are engaged with U.S. negotiators following the administration’s temporary tariff reprieve for 90 days.

These developments allowed the dollar to gain over 1% against the yen to 143.21 before settling at 141.81, and to rise 0.4% against the Swiss franc. However, DXY remains near long-term lows against key peers like the euro and franc, signaling investor hesitation. The euro pulled back to $1.1389 after eurozone data showed stalling business growth and contraction in Germany’s services sector—providing further near-term support for the dollar.

Technical Outlook: Pivot Levels in Focus

The DXY is currently trading above the minor pivot at 99.100, within a range of 100.276 to 97.921. A sustained break above 100.276 opens the door to test the critical 101.302 pivot, which could trigger a run at the 50-day moving average at 103.895, and the 200-day at 104.578.

Failure to hold 99.100 support may lead to renewed pressure toward 97.921 and potentially 97.685.

Market Forecast

With political pressure on the Fed easing and constructive trade rhetoric emerging, near-term DXY direction hinges on sustained technical support above 99.100. A break above 100.276 would reinforce dollar strength, particularly if eurozone and Chinese data continue to underperform. However, sentiment remains fragile, and traders should brace for reactive dollar moves to any renewed geopolitical or policy signals.

More Information in our Economic Calendar.