US Dollar Forecast: DXY Pivot at 99.949 Sets Tone Ahead of U.S. Jobs Report

US Dollar Index Advances on Fed Speculation, Trade Policy Uncertainty, and Eurozone Weakness

The U.S. Dollar Index (DXY) ended the week of May 30 at 99.443, up 0.34%. The greenback posted this moderate gain in a holiday-shortened week, as traders reacted to renewed trade policy concerns, mixed U.S. economic data, and signs of economic stagnation in major trading partners.

Tariff Policy Reversal Fuels Defensive Dollar Demand

Dollar strength early in the week followed a federal appeals court ruling that reinstated certain U.S. tariffs, reversing a previous block. The legal outcome injected fresh uncertainty into trade relations, notably with China, and supported a flight to safety that pushed the DXY briefly above 100. However, the index later eased as traders weighed the broader implications of prolonged trade policy friction on U.S. growth.

Mixed Economic Data Leaves Fed Path Uncertain

U.S. economic indicators offered contrasting signals. Jobless claims rose to 240,000, suggesting potential slack in the labor market. Meanwhile, the core Personal Consumption Expenditures (PCE) index showed a year-over-year increase of 2.2% in April, matching the Fed’s inflation target. Despite the stable inflation print, Fed officials remained divided, with some signaling the possibility of rate cuts if labor conditions weaken further. This indecision limited the dollar’s upside.

Euro and Pound Struggle as Growth Lags

The euro weakened against the dollar, weighed down by persistent stagnation in Eurozone activity. Preliminary data from the bloc showed sluggish industrial output and flat consumer sentiment, reinforcing expectations for the European Central Bank to begin rate cuts as early as June. The divergence in monetary policy outlooks added support to the dollar.

The British pound also declined against the greenback, pressured by political uncertainty ahead of the UK’s general election and weak retail sales figures. With the Bank of England expected to take a cautious stance, the pound’s relative weakness bolstered the DXY.

Canadian Dollar Slips on Soft Inflation

The Canadian dollar depreciated as inflation data came in below forecasts, with CPI rising just 2.7% year-over-year, down from 2.9%. This increased the likelihood of a Bank of Canada rate cut in June, undermining CAD and adding relative strength to the USD component in the DXY basket.

Market Forecast

While some short-term support has come from weakness in foreign currencies and trade-related positioning, the overall technical structure favors the bears. The fundamentals are not strong enough to offset the broader downtrend.

The DXY’s next move will likely be determined by trader reaction to the 99.949 pivot and key economic data, particularly next week’s U.S. Non-Farm Payrolls report. A failure to regain the pivot may open the door for a test of the 97.921 support level.

More Information in our Economic Calendar.