US Dollar Weekly Forecast: Near-term outlook remains bearish
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UPGRADE- The US Dollar Index receded to five-month troughs.
- Trump's chaotic trade policy remains on centre stage.
- The Fed is unlikely to change its plans next week.
The US Dollar (USD) remained on the back foot for the second consecutive week, dragging the US Dollar Index (DXY) to fresh five-month lows in the 103.25-103.20 range on March 11. So far, this zone has provided initial support, slowing the sell-off’s momentum.
Adding to the bearish outlook, the index continues to trade below its critical 200-day SMA near the 105.00 mark, keeping the door open for further downside in the near term.
The Greenback’s retreat stood in stark contrast to a modest rebound in US yields across various maturities as investors navigated a complex landscape of shifting tariffs, concerns over a potential United States (US) slowdown, and the uncertain trajectory of Federal Reserve (Fed) policy.
Trade turbulence and price pressures
As expected, US tariffs once again dominated the conversation this week. After a 25% levy on Mexican and Canadian imports went into effect on March 4, President Donald Trump announced just days later that goods from those countries under the United States-Mexico-Canada Agreement (USMCA) would be spared until April 2. Meanwhile, an additional 10% tariff on Chinese imports—bringing the total to 20%—remained intact, and Trump threatened to impose a 200% duty on wine, champagne, and spirits from the European Union (EU) in response to EU tariffs on US whiskey.
It’s important to distinguish between these tariff moves’ immediate and longer-term impacts. Initially, higher import duties can push consumer prices—a “one-off” effect that likely wouldn’t prompt the Federal Reserve (Fed) to alter its policy. However, if such trade measures persist or intensify, they may lead producers and retailers to raise prices further due to reduced competition or in pursuit of higher profits. This second-round effect could dampen demand, slow economic activity, affect employment, and even reintroduce deflationary risks—factors that might eventually force the Fed to take stronger action.
Economic outlook in question
The US Dollar’s ongoing decline has fueled growing speculation about a potential slowdown in economic activity. This sentiment has been bolstered by recent lackluster data and a dip in market confidence.
Despite inflation persistently overshooting the Fed’s 2% target—according to both Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data—the labor market seems to be cooling at a slower pace than anticipated, adding another layer of complexity to the overall economic picture.
The Fed keeps its prudent stance
Market consensus suggests that the Fed will keep interest rates steady in the 4.25%–4.50% range at its March 19 meeting, maintaining the “hawkish hold” stance from January 29. Even with a relatively optimistic economic outlook, policymakers have acknowledged “somewhat elevated” inflation levels, implying that potential headwinds may still be ahead—especially given the ongoing trade policy uncertainties.
During his semi-annual testimony before Congress, Fed Chair Jerome Powell highlighted that there is no pressing need for further rate cuts, citing strong economic growth, historically low unemployment, and persistent inflation above the 2% target. Recent remarks from Fed officials reveal a balanced view: growth is expected to continue, but several uncertainties may influence future policy decisions.
Looking ahead for the Greenback
All eyes now turn to next week’s Federal Open Market Committee (FOMC) meeting and the updated “dots plot,” which should offer further insights into the central bank’s plans for the coming months.
Technical view: US Dollar Index (DXY) dynamics
On the technical side, the US Dollar Index (DXY) has slipped below its key 200-day Simple Moving Average (SMA), reinforcing a bearish outlook. Meanwhile, oversold conditions might trigger a short-term rebound if buyers step in.
If sellers continue to dominate, support could first be found at the 2025 bottom of 103.22 (March 11), followed by the 2024 bottom at 100.15 (September 27)—all preceding the critical 100.00 level.
Conversely, any recovery might push the index toward the key 200-day SMA at 104.97, prior to the interim 100-day and 55-day SMAs at 106.76 and 107.31, respectively. Further up lies the weekly high of 107.66 (February 28), with further resistance at the February top of 109.88 (February 3) and the year-to-date peak of 110.17 (January 13).
DXY daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- The US Dollar Index receded to five-month troughs.
- Trump's chaotic trade policy remains on centre stage.
- The Fed is unlikely to change its plans next week.
The US Dollar (USD) remained on the back foot for the second consecutive week, dragging the US Dollar Index (DXY) to fresh five-month lows in the 103.25-103.20 range on March 11. So far, this zone has provided initial support, slowing the sell-off’s momentum.
Adding to the bearish outlook, the index continues to trade below its critical 200-day SMA near the 105.00 mark, keeping the door open for further downside in the near term.
The Greenback’s retreat stood in stark contrast to a modest rebound in US yields across various maturities as investors navigated a complex landscape of shifting tariffs, concerns over a potential United States (US) slowdown, and the uncertain trajectory of Federal Reserve (Fed) policy.
Trade turbulence and price pressures
As expected, US tariffs once again dominated the conversation this week. After a 25% levy on Mexican and Canadian imports went into effect on March 4, President Donald Trump announced just days later that goods from those countries under the United States-Mexico-Canada Agreement (USMCA) would be spared until April 2. Meanwhile, an additional 10% tariff on Chinese imports—bringing the total to 20%—remained intact, and Trump threatened to impose a 200% duty on wine, champagne, and spirits from the European Union (EU) in response to EU tariffs on US whiskey.
It’s important to distinguish between these tariff moves’ immediate and longer-term impacts. Initially, higher import duties can push consumer prices—a “one-off” effect that likely wouldn’t prompt the Federal Reserve (Fed) to alter its policy. However, if such trade measures persist or intensify, they may lead producers and retailers to raise prices further due to reduced competition or in pursuit of higher profits. This second-round effect could dampen demand, slow economic activity, affect employment, and even reintroduce deflationary risks—factors that might eventually force the Fed to take stronger action.
Economic outlook in question
The US Dollar’s ongoing decline has fueled growing speculation about a potential slowdown in economic activity. This sentiment has been bolstered by recent lackluster data and a dip in market confidence.
Despite inflation persistently overshooting the Fed’s 2% target—according to both Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data—the labor market seems to be cooling at a slower pace than anticipated, adding another layer of complexity to the overall economic picture.
The Fed keeps its prudent stance
Market consensus suggests that the Fed will keep interest rates steady in the 4.25%–4.50% range at its March 19 meeting, maintaining the “hawkish hold” stance from January 29. Even with a relatively optimistic economic outlook, policymakers have acknowledged “somewhat elevated” inflation levels, implying that potential headwinds may still be ahead—especially given the ongoing trade policy uncertainties.
During his semi-annual testimony before Congress, Fed Chair Jerome Powell highlighted that there is no pressing need for further rate cuts, citing strong economic growth, historically low unemployment, and persistent inflation above the 2% target. Recent remarks from Fed officials reveal a balanced view: growth is expected to continue, but several uncertainties may influence future policy decisions.
Looking ahead for the Greenback
All eyes now turn to next week’s Federal Open Market Committee (FOMC) meeting and the updated “dots plot,” which should offer further insights into the central bank’s plans for the coming months.
Technical view: US Dollar Index (DXY) dynamics
On the technical side, the US Dollar Index (DXY) has slipped below its key 200-day Simple Moving Average (SMA), reinforcing a bearish outlook. Meanwhile, oversold conditions might trigger a short-term rebound if buyers step in.
If sellers continue to dominate, support could first be found at the 2025 bottom of 103.22 (March 11), followed by the 2024 bottom at 100.15 (September 27)—all preceding the critical 100.00 level.
Conversely, any recovery might push the index toward the key 200-day SMA at 104.97, prior to the interim 100-day and 55-day SMAs at 106.76 and 107.31, respectively. Further up lies the weekly high of 107.66 (February 28), with further resistance at the February top of 109.88 (February 3) and the year-to-date peak of 110.17 (January 13).
DXY daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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