US Dollar Forecast: DXY Edges Higher to 97.673 as Fed Rate Cut Bets Ease
By James Hyerczyk | Updated: July 26, 2025, 21:16 GMT+00:00
The US Dollar Index (DXY) modestly rebounded on Friday, rising to 97.673, after touching a weekly low of 97.109 the previous day. Despite this uptick, the dollar still finished the week with a 0.21% loss—the largest five-day decline since late June—underlining ongoing volatility in currency markets amid shifting Federal Reserve (Fed) rate expectations.
Mixed US Economic Data Influences Fed Outlook
Friday’s mixed US economic indicators played a pivotal role in shaping the market’s view on the Fed’s near-term policy direction. Core capital goods orders fell unexpectedly in June, pointing to a slowdown in business investment. However, shipments for capital goods showed resilience with a moderate increase, tempering the overall outlook. This data combination supports the Fed’s current stance of patience, suggesting interest rates are likely to be held steady for now.
The outcome was a tempering of expectations for imminent rate cuts, which in turn stemmed the dollar’s recent decline but did not fully reverse the broader downward trend.
Political Pressure on Fed Adds Uncertainty
Market watchers remain attentive to the Fed’s independence ahead of its upcoming policy meeting, as political interference concerns return to the fore. Former President Donald Trump has renewed calls for interest rate cuts, putting fresh pressure on Fed Chair Jerome Powell. Although Powell remains in his position, the reemergence of political pressure has injected additional uncertainty into monetary policy expectations.
Strategists caution that renewed political involvement in Fed decisions could limit potential gains for the dollar, even if economic data supports a wait-and-see approach on interest rates.
Dollar Performance Against Major Currencies
Against the Japanese yen, the US dollar gained 0.4% to reach 147.59, bolstered by Tokyo’s softer-than-expected inflation data. However, political repercussions following Japan’s recent upper house elections may constrain the Bank of Japan’s ability to tighten policy, curbing further yen weakness and limiting support for the dollar.
Meanwhile, the euro held relatively steady, closing flat at $1.1741 but marking a 1% gain on the week. The European Central Bank’s (ECB) relatively optimistic tone and potential progress on a US-EU trade deal bolstered sentiment around the euro.
The pound, on the other hand, slipped 0.6% to $1.3434 against the dollar after UK retail sales and employment data fell short of forecasts. The euro pound rate climbed to 87.43 pence, its highest since April, reflecting relative UK economic softness.
Technical Outlook Remains Bearish for the Dollar Index
Technically, the DXY continues to struggle against key resistance levels. The index remains capped below its 50-day moving average at 98.400, having failed to hold above the weekly peak of 98.508. It closed the week just above immediate support at 97.109. With the broader bearish trend intact beneath the 200-day simple moving average (SMA) of 103.412, the dollar remains vulnerable without a hawkish pivot from the Fed. Should downward pressure continue, traders may target the July low of 96.377 as the next critical level to watch.
Looking Ahead
The US dollar’s trajectory remains sensitive to upcoming economic data releases and Fed communications. Investors will closely monitor the Fed’s meeting next week for any hints of shifting policy amid political pressures and mixed economic signals.
For traders, key technical levels—specifically the 50-day moving average—will be important markers for identifying potential breakouts or further declines in the DXY.
About the Author:
James Hyerczyk is a seasoned US-based technical analyst and educator with over 40 years of experience in market analysis and trading. He specializes in chart patterns and price movement and is the author of two books on technical analysis. His expertise spans futures and stock markets.
This article is for informational purposes only and does not constitute investment advice. Readers should perform their own due diligence and consult financial advisors before making trading decisions.