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US Dollar Outlook: DXY Recovers Slightly Amid Fed Cut Bets and Political Uncertainty

The US Dollar Index (DXY) rebounded modestly on Monday, climbing 0.2% to 98.82, after suffering a sharp sell-off last Friday. The greenback’s recovery came as markets processed disappointing job figures, increasing rate cut expectations, and political reshuffling within key economic institutions.

Fed Rate Cut Odds Rise Sharply After Weak Jobs Data

Last week’s US nonfarm payrolls report revealed a significant miss, with only 73,000 jobs added in July, compared to forecasts of 110,000. Moreover, downward revisions to May and June wiped out a total of 258,000 jobs, amplifying concerns about a softening labor market.

As a result, traders are now pricing in an 84% probability of a Federal Reserve rate cut in September, with a total of 60 basis points in easing projected before year-end, according to the CME FedWatch Tool.

Adding to the uncertainty, Fed Governor Adriana Kugler resigned ahead of schedule, and President Trump dismissed BLS Director Erika McEntarfer, raising speculation that upcoming appointments may lead to a more dovish Fed stance.

Treasury Yields Drop as Markets Adjust to Policy Shift

Following the labor data and political developments, 2-year Treasury yields plunged to 3.659%, the lowest level in three months, while the 10-year yield hovered near a one-month low of 4.22%. The bond market reaction reflects expectations of lower borrowing costs ahead.

Despite this, broader market sentiment remains stable, supported by solid US corporate earnings. According to Karl Schamotta of Corpay, “investors are holding steady ahead of key Fed and BLS appointments.”

Technical View: 98.300 Key Support for DXY

From a technical analysis perspective, the DXY remains in an uptrend, defined by higher highs and higher lows. However, a crucial support zone lies at the 50-day moving average, currently at 98.300. If the index breaks below this level, it may test the swing low at 97.109.

Upside resistance stands at 99.177 and 99.838, while a break above 100.257 would confirm bullish continuation. On the downside, a failure to hold 98.300 could trigger deeper losses in the short term.

The 200-day moving average, hovering above 103.24, still reflects a longer-term bearish bias despite recent upward corrections.

What to Watch This Week

98.300 technical level: A decisive bounce or break here will guide short-term dollar direction.
Upcoming Fed nominations: President Trump’s replacements for Kugler and McEntarfer could reshape monetary policy.
September rate cut signals: Data and commentary leading up to the FOMC meeting will influence the greenback’s trajectory.

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Yasher Rizwan