US Dollar Forecast: Edges Higher as Fed Hold and Middle East Tensions Boost DXY

Dollar Edges Up After Fed Hold as Traders Eye 50-Day Average Resistance

The U.S. Dollar is inching higher against a basket of currencies following the Federal Reserve’s decision to hold interest rates steady on Wednesday. Trading remains thin due to the Juneteenth holiday, but safe-haven demand continues to provide underlying support as geopolitical tensions and global monetary policy signals create crosswinds for the greenback.

At 14:09 GMT, the U.S. Dollar Index is trading 98.903, up 0.053 or +0.05%.

Federal Reserve Holds Steady, Markets Eye Inflation Risks

The Federal Reserve maintained its key rate on Wednesday, in line with market expectations, and reiterated its forecast for two rate cuts later this year. However, the Fed also revised its inflation expectations higher, citing potential long-term impacts from U.S. President Donald Trump’s tariffs and ongoing geopolitical conflict in the Middle East. Chair Jerome Powell emphasized a wait-and-see stance, noting the need for more clarity on whether tariffs would stoke sustained inflation or weaken labor markets.

U.S. Treasury yields held relatively flat following the announcement, with the 10-year at 4.391% and the 2-year dipping slightly to 3.939%. Despite weaker housing data and elevated jobless claims, traders largely kept their expectations intact, pricing in two 25 bps rate cuts before year-end.

Dollar Firms but Faces Resistance; Watch the 50-Day Moving Average

The DXY is pushing higher but remains technically constrained below its downtrending 50-day moving average at 99.600. A continuation of short-covering could bring that level into focus, but given the broader downtrend, selling interest is likely to reemerge near this key resistance. A decisive break above it could signal a more aggressive bullish reversal, particularly if geopolitical risks intensify.

Recent gains in the dollar reflect renewed safe-haven flows as the Israel-Iran conflict escalates. However, the DXY remains down around 8% year-to-date, with confidence in U.S. trade and fiscal policy eroding under the pressure of tariff uncertainty and erratic policymaking.

Bank of England Decision Reinforces Greenback’s Strength

Across the Atlantic, the Bank of England held its benchmark rate at 4.25%, with a dovish 6-3 vote split indicating a potential cut as soon as August. While the pound briefly firmed on perceived clarity, the central bank flagged global uncertainty and soft domestic growth, reinforcing safe-haven flows toward the dollar. Rising energy prices and geopolitical risks further complicate the BoE’s rate path, with inflation still well above its 2% target.

Market Forecast: DXY Faces Key Test at 99.600

With limited U.S. data ahead and holiday-thinned trading, the DXY’s near-term fate hinges on price action around the 50-day MA at 99.600. Failure to break above could lead to renewed downside, particularly if global central banks continue to pivot dovish. However, escalating geopolitical tensions and continued Fed caution could sustain dollar strength in the short term. For now, traders should expect range-bound conditions with an upside bias until key resistance is tested.

More Information in our Economic Calendar.