This week, the US Dollar (USD) struggled to stabilise, leading the US Dollar Index (DXY) to drop to new three-year lows near 96.20.
The US Dollar traded on the defensive, keeping its bearish tone.The Fed eral Reserve lowered its interest rate, as expected.Investors’ focus now shifts to the release of US PCE data.The week that wasThis week, the US Dollar struggled to stabilise, leading the US Dollar Index to drop to new three-year lows near 96.
20. However, a significant recovery ensued following the Federal Reserve's decision to reduce its Fed Funds Target Range by 25 basis points on Wednesday, which aligned with the broader market consensus.The optimism surrounding the Greenback in the latter part of the week was enough, however, to trim weekly losses and leave the index almost unchanged when looking at the weekly chart.Mirroring the buck, Treasury yields told the same story, making a U-turn across the curve as investors continued to parse the FOMC gathering.The Fed delivers; Powell disappoints bearsThe Fed lowered rates by a quarter point, pointing to slowing job growth and rising risks to employment while acknowledging inflation remains “somewhat elevated”. Projections show another 50 basis points of cuts are likely this year, with smaller reductions pencilled in for 2026 and 2027. The 2025 median rate forecast was nudged down to 3.6%, while growth was revised slightly higher to 1.6%. Unemployment was held at 4.5%, and inflation expectations were unchanged.The decision wasn’t unanimous: new governor Stephen Miran pushed for a deeper half-point cut. Still, the Fed kept its balance sheet reduction on track and reiterated its dual mandate.At his press conference, Chair Jerome Powell struck an unexpected careful tone. He noted that job gains have slowed, consumer spending is softening, and inflation is running at 2.7% on headline PCE and 2.9% on core. Tariffs are driving goods prices higher, he said, though services inflation continues to cool. Powell stressed that risks are becoming more balanced, the Fed is moving closer to neutral, and there was little appetite for a bigger cut.So far, markets now see two more rate cuts in October and December, while implied rates see around 112 basis points of easing by the end of 2026. Voices from the after-cutStephen Miran, in his first public comments as a Fed Governor, said Friday he was concerned that keeping policy where it is could put the job market at risk unless rates come down meaningfully over time.Meanwhile, Minneapolis Fed President Neel Kashkari said the risks to employment justified this week’s rate cut and probably more reductions at the next two meetings. He also played down concerns that the Fed’s credibility was at risk, despite inflation still running above target and political pressure from the Trump administration.The trade front has been silentTrade tensions have cooled a little recently after Washington and Beijing agreed to extend their truce for another 90 days. President Trump pushed back a planned tariff hike until 10 November, and China chose not to retaliate. Even so, the tariff burden is still heavy — US imports from China face a 30% levy, while Chinese exports to the US are taxed at 10%.At the same time, Washington struck a fresh deal with Brussels. The European Union agreed to reduce tariffs on US industrial goods and expand the market for American farm and seafood products. In return, Washington slapped a 15% tax on most European goods coming into the US. Car tariffs, though, remain a live threat, with EU rules still under discussion.Looking at the forest, tariffs remain a wild card. They may deliver short-term political wins, but the longer they stay in place, the more they risk driving up household costs and dragging on growth. Some in Trump’s circle appear relaxed about a weaker US Dollar to help exports, but reshoring manufacturing is a long, expensive process that tariffs alone won’t fix.What’s next for the Dollar?Next week’s focus turns squarely to US inflation data, this time tracked by the PCE, and the usual weekly report on the domestic labour market.However, a slew of Fed officials are expected to voice their views following the latest Fed meeting, which is expected to drive the markets’ sentiment.Technical outlook: Bears still in controlThe technical setup doesn’t look friendly for the US Dollar.If the DXY breaks below its 2025 valley at 96.21 , the next checkpoints sit at the February 2022 base of 95.13 and the 2022 bottom at 94.62 .On the topside, the August high at 100.26 is the first big hurdle. Clearing it would put the May weekly peak at 100.54 and the May ceiling at 101.97 back in play.For now, the index remains capped below both the 200-day SMA and the 200-week SMA , keeping the broader bias tilted lower.Momentum indicators echo that view: the Relative Strength Index hovers around 48, showing swelling bullish energy, while the Average Directional Index near 14 signals a market without muscle.US Dollar Index daily chartBottom lineThe US Dollar’s weakness reflects more than just weak data. Political pressure on the Fed, prospects of further rate cuts, tariff risks, and swelling government debt are all clouding sentiment.Even when the Greenback rallies, those gains don’t stick for long. Most strategists still see more downside ahead, though with net shorts already built up, a lot of the bearish story may already be priced in, limiting how far the slide can extend. Fed FAQs What does the Federal Reserve do, how does it impact the US Dollar? Monetary policy in the US is shaped by the Federal Reserve . The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback. How often does the Fed hold monetary policy meetings? The Federal Reserve holds eight policy meetings a year, where the Federal Open Market Committee assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis. What is Quantitative Easing and how does it impact USD? In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing . QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar. What is Quantitative Tightening and how does it impact the US Dollar? Quantitative tightening is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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