Dollar struggles to find direction amid fiscal uncertainty and Fed resistance

Despite a brief uptick following the stronger-than-expected JOLTS job openings report on Wednesday, the U.S. dollar remains fragile, barely holding above multi-month lows. The rebound felt more like a technical breather than a fundamental shift in sentiment. For anyone closely watching the market, it’s clear the greenback is moving through one of its most structurally vulnerable phases in recent memory.

At the center of this pressure lies a deepening policy divide between the White House and the Federal Reserve. President Trump’s ambitious $3.3 trillion tax-and-spending package, which passed the Senate but still faces hurdles in the House, has injected a fresh wave of uncertainty into the fiscal outlook. It’s not just the size of the package that raises eyebrows—it’s the potential implications for inflation, debt markets, and the Fed’s policy trajectory.

Fed Chair Jerome Powell, for his part, has maintained a cautious and methodical stance. His recent comments suggest that the central bank remains committed to its data-dependent approach, resisting growing pressure from the administration to slash rates. While Powell acknowledged the inflationary risks associated with looming tariffs, he made it equally clear that rushing into monetary easing could undermine long-term stability.

This policy tug-of-war is doing little to support the dollar. In fact, the DXY has recorded one of its weakest first-half performances in decades. Global investors have increasingly sought alternatives, driven by de-dollarization trends, divergent monetary policies, and lingering doubts about the dollar’s role in a rapidly evolving macro landscape.

Looking ahead, the market is bracing for potential fireworks around the July 9 deadline, when new U.S. tariffs are set to kick in—unless last-minute deals are reached. President Trump has made it clear he does not plan to extend the deadline. That keeps trade tensions with Japan, India, and the European Union squarely in focus. A breakdown in talks could trigger retaliatory measures, weigh further on risk sentiment, and compound dollar weakness.

From a technical standpoint, the picture remains bearish. The DXY is trading beneath a thick daily Ichimoku cloud, with both the Tenkan-sen and Kijun-sen aligned bearishly. Price action is tracking a descending channel that started from the May 12 high (101.80), and momentum remains decisively negative. The latest bounce looks corrective, not constructive.

The 97.50 region is shaping up as critical resistance, anchored by the 50% Fibonacci retracement of the 99.01–95.97 move and the upper bound of the current channel. A rejection here could set the stage for another leg lower, with 95.97 acting as a key short-term pivot. Below that, the 95.18 level (76.4% Fibonacci of the 2021–2022 uptrend) comes into play, followed by 94.59.

All in all, it feels like the dollar is in a holding pattern, caught between conflicting narratives. On one hand, hawkish resistance from the Fed is helping prevent a full collapse. On the other, political pressure and fiscal overhang are gnawing at the market’s confidence. Unless there’s a clear shift—either through a breakthrough in trade negotiations, clarity on fiscal stimulus, or a meaningful change in inflation dynamics—the bias remains to the downside.

This isn’t a panic-driven selloff. It’s a slow, methodical unwinding of dollar support, driven by a broader sense that the macro environment is shifting. As traders, the message is clear: expect volatility, manage exposure carefully, and pay close attention to the policy chessboard. The dollar may be down, but the next move could still surprise us all.