The US dollar index (DXY) remained under pressure this week, hovering near a seven-week low of 98.13, reflecting the market's repricing of the Federal Reserve's future policy path. Although the latest meeting only implemented a 25-basis-point rate cut, investors widely expect future rate cuts to be significantly faster than policymakers have indicated.

According to the latest interest rate path released by the Federal Reserve, policymakers expect the federal funds rate to fall to 3.4% by the end of 2026, implying only one rate cut in the coming year. However, according to CME FedWatch data, the market believes there is a 58% probability of at least two rate cuts in the coming year, clearly favoring a more accommodative approach.

The US dollar weakened against most major currencies this week, with the largest decline against the Swiss franc. This reflects a reassessment of the market's monetary policy outlook and a weakening of safe-haven demand.

A foreign exchange strategist said, "The current decline in the dollar is not due to a single factor, but is the result of the combined effects of interest rate expectations, risk sentiment and policy communication."

Besides the divergence in policy paths, the market has recently focused on the intensifying discussions regarding the independence of the Federal Reserve, while calls from the presidential level for larger interest rate cuts have made dollar bulls more cautious. Furthermore, the overall macroeconomic environment this week leans towards risk appetite, further weakening the dollar's safe-haven appeal.

Against this backdrop, next week's US non-farm payrolls (NFP), retail sales, and PMI data will be key windows for assessing economic resilience and future policy pace, and are expected to lead to greater volatility in the US dollar.

The US dollar index is currently trading in a weak range, and the short-term structure has not yet shown any reversal signals. The DXY index further declined after breaking below the 98.50 support level, and the bulls and bears are currently battling it out near a seven-week low. On the upside: if the index regains control above 98.80, it could push prices to the 99.30 and 99.75 levels, forming a signal of a phase of recovery.

On the downside: If the 98.00 level is breached, the trend will further target the 97.40 and 96.85 areas, and the market may enter a deeper weak channel. Overall, the US dollar index remains under downward pressure, and the technical outlook leans towards continued weak and volatile trading.

Editor's Note:

The real problem facing the US dollar right now is not a rate cut, but the huge gap between market expectations and the Federal Reserve's policy expectations. If subsequent economic data continues to be weak, the market will further strengthen its expectations of easing, causing the dollar to remain weak.

Conversely, if non-farm payrolls or retail sales figures are strong, the US dollar may experience a rapid recovery. In the short term, the dollar's performance will be highly dependent on data, while disagreements in policy communication may continue to bring additional volatility to the dollar.