US Dollar Forecast: Will DXY Correct to 105.219 After Euro Strength and Gold Rebound?

U.S. Dollar Index Slips as Euro Recovers; Treasury Yields and Gold Prices Rise

The U.S. Dollar Index (DXY) edged lower on Monday, easing from its recent highs as the euro regained some footing. Despite this dip, the DXY remains near key resistance levels of 107.064, 107.113, and 107.348, sustained by rising U.S. Treasury yields. Traders now eye a potential correction toward the 50% retracement pivot at 105.219, marking a crucial level if the dollar’s rally pauses.

Dollar Gains Against Yen Amid Bank of Japan Caution

The dollar strengthened 0.51% against the Japanese yen, reaching 154.95, following remarks from Bank of Japan Governor Kazuo Ueda, who reiterated the likelihood of gradual rate hikes but avoided committing to a December increase. This indecision followed warnings from Japanese Finance Minister Katsunobu Kato about possible market intervention to stabilize the yen. Market participants now price in a 55% probability of a quarter-point rate hike by the BoJ at its December 19 meeting.

In contrast, the euro steadied at $1.0547 after plunging to a one-year low of $1.0496 last week. Concerns over potential U.S. tariffs under President Trump’s administration and subdued growth in the eurozone have weighed on the currency. Analysts suggest the euro could approach parity with the dollar next year, depending on U.S. trade policy developments.

Treasury Yields Rise, Supporting Dollar Strength

The 10-year U.S. Treasury yield climbed to 4.461%, following a sharp 70-basis-point rise in October, which has driven a 5.4% surge in the DXY. Higher yields have made U.S. bonds more appealing, overshadowing recent remarks by Federal Reserve Chair Jerome Powell, who hinted at a less aggressive rate-cutting approach. With the Fed’s minutes due later this week, traders are watching for clues about the central bank’s policy direction heading into 2024.

Gold Prices Rebound as Dollar Rally Pauses

Gold prices advanced 1.3% to $2,593.32 per ounce after a six-session decline, supported by a softer dollar. Last week, the precious metal experienced its steepest weekly drop in over three years due to diminished expectations of Fed rate cuts. Analysts see limited downside for gold in the short term, with opportunistic buying emerging as year-end profit-taking looms.

Market Outlook: Potential Dollar Correction Looms

While the DXY remains resilient, a break below 106.331 could signal a retracement toward the 105.219 pivot. Continued strength in Treasury yields and euro stability will likely influence near-term movements. Meanwhile, gold may see choppy trading as the Fed’s next steps remain uncertain, leaving traders vigilant ahead of upcoming economic data and central bank commentary.