US Dollar Weekly Forecast: The Fed will have the last word

The week that was

Another week, another decline for the US Dollar (USD).

Despite the humble recovery seen in the latter part of the week, the US Dollar Index (DXY) remained well on the defensive, breaking below its 99.00 support to clinch new multi-week troughs. The move has also breached its critical 200-day SMA around 99.50, potentially leading to further losses in the short term.

The Greenback’s deeper retracement, however, came in contrast to the decent recovery in US Treasury yields across various maturity periods, always in the context of rising bets for another rate reduction by the Federal Reserve (Fed) at next week’s meeting and simmering prospects for a more dovish Fed in the future, particularly after Chair Jerome Powell ends his term in May 2026.

It’s been a tough stretch for the US Dollar lately. Markets are still trying to get a proper read on where the Fed wants to go next, but mixed commentary from policymakers hasn’t made that any easier. With officials pulling in slightly different directions on the pace of future rate cuts, investors have been cautious, and the Greenback has been feeling that pressure.

A rate cut… with strings attached

Back in late October, the Fed delivered exactly what traders were expecting: a 25-basis-point cut, approved by a comfortable 10–2 vote. That brought the target range down to 3.75–4.00%, keeping policy in line with forecasts but still stirring a bit of internal tension.

What really surprised markets wasn’t the cut itself but the Fed’s low-key move to restart small Treasury purchases. Officials framed it as a technical fix for emerging stress in money markets, but the underlying message was clear: liquidity has become a bigger concern than they’d like to admit.

At the press conference, Chair Jerome Powell made it clear the committee isn’t united. He warned investors not to assume a December cut is guaranteed. Inflation isn’t cooling fast enough for comfort, and while the labour market is softening, it’s far from collapsing. It’s a messy backdrop, and Powell didn’t pretend otherwise.

Still, markets haven’t backed off entirely. Futures still put the odds of another cut on December 10 at a little above 84%, and they’re pricing around 80 basis points of easing by the end of 2026.

Officials are talking, but not in harmony

With the next decision fast approaching, the Fed is showing plenty of opinions but not much consensus.

Mary Daly (San Francisco) said it’s too soon to firmly support or reject another move. Austan Goolsbee (Chicago) warned that front-loading cuts could be risky if the latest inflation pickup doesn’t fade.

Kansas City’s Jeffrey Schmid seems satisfied with the policy stance right now, describing it as “modestly restrictive”. Governor Christopher Waller is still focused on the labour market and suggests one more cut is likely, given months of gradual cooling.

New York’s John Williams sees space for a bit more easing to nudge policy closer to neutral. But Boston’s Susan Collins isn’t convinced the Fed should loosen further just yet, a view supported by Beth Hammack (Cleveland), who thinks restrictive policy is still needed to finish the job on inflation.

Governor Stephen Miran sounds more comfortable cutting, saying he’d “absolutely” support a quarter-point move if it came down to him. Vice Chair Philip Jefferson and St. Louis Fed President Alberto Musalem, meanwhile, emphasise caution and want the committee to take its time.

Lorie Logan (Dallas) prefers to hold steady unless the data forces a change. Neel Kashkari (Minneapolis) says he can argue it either way depending on how conditions evolve. And from Richmond, Thomas Barkin says there’s no reason to panic in either direction.

Atlanta’s Raphael Bostic, not voting this year and departing in early 2026, added that the labour market picture isn’t clear enough to justify major easing while inflation still lurks above target.

What does it mean for the Dollar next

All eyes are now on the Fed’s policy announcement next week and the updated Summary of Economic Projections (SEP) that accompanies it. Any shift in the future rate path could move markets quickly, especially given how fragile US Dollar sentiment has been lately.

Technical picture

Since pushing above the 100.00 mark in November, the US Dollar Index (DXY) has been in a corrective phase.

For the outlook to turn convincingly bullish again, the index still needs to clear the key 200-day SMA at 99.51. Thereafter, it will have to overcome its November high at 100.39 (November 21), seconded by the weekly top at 100.54 (May 29) and the May ceiling at 101.97 (May 12).

On the flip side, there is provisional support at the 100-day SMA at 98.58. The breach below the latter exposes a probable decline to the weekly base at 98.03 (October 17) ahead of the 2025 bottom at 96.21 (September 17). South from here comes the February 2022 valley at 95.13 (February 4) and the 2022 trough at 94.62 (January 14).

Momentum signals have cooled slightly: The Relative Strength Index (RSI) remains just above the 41 level, while the Average Directional Index (ADX) is just above 16, suggesting the current trend lacks muscle.

Bottom line: Uncertainty still rules

The Dollar has lost some of its shine recently. Momentum is weak, confidence is soft, and the Fed hasn’t provided the clarity traders crave. Still, it’s not all downside: a few officials are keeping a hawkish voice alive, which could give the Greenback something to lean on temporarily.

The bigger headache is the lingering impact of the historic government shutdown. The US economy looks okay on paper, but without current data, nobody really knows just how okay. When those delayed releases finally drop, they could quickly reset expectations for the Fed.

For now, inflation remains centre stage, and the labour market is the key supporting act. If price pressures prove stickier than expected, the Fed could be forced back toward restraint, and that would almost certainly give the Dollar a shot at redemption.