Dollar index

The US dollar forecast remains modestly bearish following last week’s big drop, driven largely by the rallying EUR/USD pair on the back of the Germany’s big spending plans.

The combination of uncertain growth prospects in the US and the possibility of large fiscal stimulus in Europe has had a predictably bearish impact on the US Dollar Index (DXY).

Friday's data showing strong wages growth and hot inflation expectations, and ongoing expectations of inflationary policies under Donald Trump, means the Fed is likely to remain on pause for a long time. Against this backdrop, the US dollar forecast remains bullish.

FX investors are looking forward to the release of US nonfarm payrolls report, due tomorrow, which should impact the near-term dollar forecast.

NFP leading indicators point to a potentially above-expectation reading in Friday's jobs report - see what it might mean for the US Dollar!

The US dollar forecast remains modestly bullish in our view, because of Trump’s inflationary policies. The fact that it has weakened a little in recent days is more of a reflection of the relief rally that some currencies like the euro have enjoyed.

While one can argue the greenback has made a short-term peak, the overall dollar forecast remains positive, especially against currencies subject to increased tariff risks from Trump’s administration.

Traders are pricing in roughly a 1-in-10 chance that the Fed leaves interest rates unchanged at its November, but it may take 4 more better-than-expected US economic reports in a row.

Recent macroeconomic data points to a weakening US economy, and if that trend continues then it could spell trouble for the dollar in the months ahead. This puts today’s upcoming data in focus.

EURUSD Outlook: The EURUSD chart managed to extend a wick beyond its yearly consolidation before dropping back to the 1.09 zone, while the US Dollar index (DXY) maintained its trend within the borders of its consolidation. Is a reversal on the horizon?

USDJPY Forecast: The USDJPY erased its 2024 gains and is poised to retest a key support level respected in December 2023.

So far, we have only seen the euro show any signs of strength apart from those where interest rates are lower – JPY, CHF and CNH. The broader US dollar forecast should turn more negative once the equity markets shown signs of stabilisation light of the sharp repricing of US interest rates.

There is one more macro even left that could provide even more volatility in the markets, namely the ISM services PMI on Monday. I reckon once the equity market volatility settles, the recent weakness in US data should translate into a more widespread dollar weakness. So, I maintain a bearish dollar forecast for the week ahead, especially now that we have seen a weaker jobs report today.

Dollar is supported by better-than-expected US data and unexpected dovish moves from certain central banks outside of the US. The Fed was also dovish, but it is all about inflation data moving forward. Next week’s macro highlights include CPI data from Australia and Japan and core PCE from the US. Dollar Index technical analysis points higher – for now.

Traders are pricing in a small, but non-zero, chance of a Fed rate hike in 2024. Those odds could grow with a couple more hotter-than-expected inflation reports.

Dollar Index was testing a key support level as focus turns to PPI inflation after a hot CPI earlier this week. US dollar was hurt by weak retail sales on Thursday, but rising import costs is inflationary. The week ahead features global PMIs among a handful of other macro data releases.

Dollar weakness is lacking fundamental justification, with the Dollar Index looking to bounce back as it tests key support, while EUR/USD is back to probe broken support at 1.0780, which could turn into resistance.