US Dollar Weekly Forecast: Near-term outlook remains bearish

• 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