USD Forecast: Downward momentum targets 50-day moving average, Fed nomination risks intensify
2025-08-07 01:35:25
The US Dollar Index (DXY) weakened on Wednesday, August 6, breaking below a minor pivot at 98.683, triggering downward momentum. Traders are currently eyeing support near 98.317 and the 50-day moving average at 98.64. Above 97.109, the medium-term trend remains intact, but a break below these lower levels could signal a deeper correction. Upward resistance is dense, with 98.683 currently acting as the closest resistance, followed by 99.177, 99.838, and the July high of 100.257.
The dollar weakened despite higher U.S. Treasury yields as investors turned their focus to escalating political risks associated with upcoming Federal Reserve nominations.
President Trump confirmed he will soon decide on a replacement for outgoing Federal Reserve Governor Adriana Kugler, while speculation intensified about potential successors to Fed Chair Jerome Powell. Markets are wary of increased political influence on the central bank, particularly after Trump fired Bureau of Labor Statistics Director Erica McEntuff following a weaker-than-expected July nonfarm payrolls report.
ISM services data raises stagflation concerns
The ISM Services Index, released on Tuesday, further exacerbated bearish sentiment for the dollar. The headline index fell to 50.1 in July, below June's 50.8 and the consensus forecast of 51.2. Drilling down, the price index surged to 69.9, its highest level since early 2022, while the employment index contracted further to 46.4. Deutsche Bank analysts called the data "worrying," noting that Trump's tariff increases have heightened concerns about stagflation.
On Wednesday, the United States imposed a 25% tariff on India, bringing the total to 50%, over India's continued imports of Russian oil. The White House also threatened to impose harsher penalties if India continued to buy Russian oil, raising geopolitical risks and further complicating the Federal Reserve's policy calculations.
Bond supply pressures meet weak demand
The 10-year Treasury yield rose slightly to 4.238% after a $58 billion auction of 3-year notes showed weak demand (a bid-to-cover ratio of 2.53). More bond supply is expected to enter the market, with $42 billion in 10-year notes due on Wednesday and $25 billion in 30-year bonds on Thursday. While rising yields typically support the dollar, traders appear more focused on expectations of rate cuts and structural risks related to the credibility of monetary policy.
Market Forecast: The US dollar faces headwinds below the resistance range
(Source of US Dollar Index daily chart: Yihuitong)
As the US dollar index struggles to recover to 98.683, technical pressure tends to test 98.200. If the bearish momentum accelerates, it may further test 97.109.
While a Fed speech later on Wednesday could provide a short-term catalyst, traders generally see an 86.5% probability of a September rate cut, with the potential for as much as 56 basis points of reductions by year-end.
Unless the Fed more forcefully refutes dovish expectations, the dollar’s path back above 99 in the near term may remain blocked.
At 01:34 Beijing time, the US dollar index was at 98.2440/610, down 0.52%.
The dollar weakened despite higher U.S. Treasury yields as investors turned their focus to escalating political risks associated with upcoming Federal Reserve nominations.
President Trump confirmed he will soon decide on a replacement for outgoing Federal Reserve Governor Adriana Kugler, while speculation intensified about potential successors to Fed Chair Jerome Powell. Markets are wary of increased political influence on the central bank, particularly after Trump fired Bureau of Labor Statistics Director Erica McEntuff following a weaker-than-expected July nonfarm payrolls report.
ISM services data raises stagflation concerns
The ISM Services Index, released on Tuesday, further exacerbated bearish sentiment for the dollar. The headline index fell to 50.1 in July, below June's 50.8 and the consensus forecast of 51.2. Drilling down, the price index surged to 69.9, its highest level since early 2022, while the employment index contracted further to 46.4. Deutsche Bank analysts called the data "worrying," noting that Trump's tariff increases have heightened concerns about stagflation.
On Wednesday, the United States imposed a 25% tariff on India, bringing the total to 50%, over India's continued imports of Russian oil. The White House also threatened to impose harsher penalties if India continued to buy Russian oil, raising geopolitical risks and further complicating the Federal Reserve's policy calculations.
Bond supply pressures meet weak demand
The 10-year Treasury yield rose slightly to 4.238% after a $58 billion auction of 3-year notes showed weak demand (a bid-to-cover ratio of 2.53). More bond supply is expected to enter the market, with $42 billion in 10-year notes due on Wednesday and $25 billion in 30-year bonds on Thursday. While rising yields typically support the dollar, traders appear more focused on expectations of rate cuts and structural risks related to the credibility of monetary policy.
Market Forecast: The US dollar faces headwinds below the resistance range
(Source of US Dollar Index daily chart: Yihuitong)
As the US dollar index struggles to recover to 98.683, technical pressure tends to test 98.200. If the bearish momentum accelerates, it may further test 97.109.
While a Fed speech later on Wednesday could provide a short-term catalyst, traders generally see an 86.5% probability of a September rate cut, with the potential for as much as 56 basis points of reductions by year-end.
Unless the Fed more forcefully refutes dovish expectations, the dollar’s path back above 99 in the near term may remain blocked.
At 01:34 Beijing time, the US dollar index was at 98.2440/610, down 0.52%.
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