U.S. Dollar Index forecast: DXY stuck below 103.7 as markets await Fed projections
In 2025, the index fell by more than 4.5%
The U.S. Dollar Index (DXY) continues to exhibit weakness amid consolidation within a tight range as investors anticipate the Federal Reserve’s interest rate decision this week. Since the start of 2025, the index has trended lower over 4.5%, slipping below the key 103 level and reaching a five-month low of 102.9 last week. While a brief recovery to 103.7 was observed, gains were short-lived, keeping the dollar within a narrowband between 102.9 and 103.7.
The primary factor behind the dollar’s sluggish performance is market sentiment surrounding the Fed’s monetary policy outlook. The central bank is widely expected to hold interest rates steady at 4.25%-4.50%. However, investors will closely watch the Fed’s updated dot plot and Summary of Economic Projections (SEP), which will indicate policymakers’ expectations for future rate cuts, growth, employment, and inflation. Adding to concerns, trade policy uncertainties under President Donald Trump’s administration are fueling speculation that new tariffs could drive inflation higher, weighing on household consumption and potentially weakening the dollar further.
RSI signals potential recovery, but EMA reinforces DXY bearish outlook
DXY price dynamics (Dec 2024 - March 2025). Source: TradingView.
On the technical front, the U.S. Dollar Index remains constrained near the resistance level at 103.7 which is reinforced by the 50-day EMA on the 4-hour chart, thus making a sustained move higher difficult. Meanwhile, the daily RSI remains near oversold territory, suggesting a potential short-term rebound. However, without a fundamental shift in market expectations, any recovery may struggle to hold.
With the dollar stuck near 103.3 in Monday’s Asian and European sessions, market volatility is expected to remain subdued within the established price range until the Fed’s announcement. A hawkish stance or a reduced rate-cut forecast could support a move above 103.7, while dovish signals may accelerate a decline toward 102.9 and beyond.
Stronger labor data and higher Treasury yields supported the U.S. dollar's recovery from a midweek drop. The DXY rebounded from a five-month low of 102.90, reaching 103.70.
