US Dollar Index Holds Steady Below 98.00 as Fed’s Dovish Outlook Pressures the Greenback

The US Dollar Index (DXY) hovered just below the 98.00 level, trading around 97.85 in Monday’s Asian session, as markets digested mixed economic signals and awaited key geopolitical developments. The DXY, which tracks the performance of the US Dollar (USD) against a basket of six major currencies, remains under pressure as the Federal Reserve’s dovish stance continues to shape investor sentiment.

Geopolitical Tensions Add Volatility Risk

Market focus extended beyond economics as geopolitical risk took center stage. Following US President Donald Trump’s meeting with Russian President Vladimir Putin in Alaska, Trump signaled a willingness to push Ukrainian leader Volodymyr Zelenskiy toward a swift peace accord. Reports also suggested the US may be open to Russia’s territorial demands — a development that could trigger renewed volatility.

For seasoned traders, such geopolitical shifts are crucial. Any escalation in tensions typically fuels safe-haven flows, which historically benefit the US Dollar Index, gold, and US Treasuries. However, the Fed’s policy path is currently outweighing geopolitical support for the greenback.

US Economic Data: Mixed but Pointing to Slower Growth

On the macroeconomic front, US Retail Sales rose 0.5% month-on-month in July, following a revised 0.9% gain in June, broadly in line with forecasts. Annualized sales growth came in at 3.9%, reinforcing steady but cooling consumer demand.

The University of Michigan Consumer Expectations Index dipped slightly to 57.2 in August, down from 57.7 in July. More importantly, inflation expectations edged higher:

• 1-year outlook rose to 4.9%
• 5-year outlook climbed to 3.9%

For professional traders, the combination of resilient consumer demand and sticky inflation underscores the Fed’s delicate balancing act between growth risks and inflationary pressures.

Federal Reserve Outlook: Jackson Hole in Focus

The upcoming Jackson Hole Symposium is now the focal point for markets. According to CME FedWatch Tool, probabilities are heavily tilted toward near-term policy easing:

• 93% chance of a 25bps cut in September
• 55% probability of an additional cut in October
• 43% likelihood of a December cut

This dovish bias continues to weigh on the US Dollar Index, keeping it capped below the psychological 98.00 resistance zone.

Technical Outlook for DXY

From a technical perspective, the DXY is consolidating in a narrow band, with immediate support around 97.50 and resistance near 98.00–98.20. A break below support could expose 97.20 and 96.80, while a close above 98.20 would signal renewed bullish momentum.

Professional traders should also monitor the 10-year Treasury yield, which remains correlated with USD momentum. Any sharp decline in yields would likely accelerate dollar weakness.

Key Takeaways for Experienced Traders

• The US Dollar Index (DXY) is holding steady below 98.00 amid a dovish Fed outlook.
• Geopolitical risk from US–Russia–Ukraine developments could trigger safe-haven flows.
• Retail Sales remain steady, but rising inflation expectations keep pressure on the Fed.
• Markets now price a 93% probability of a September rate cut, with further easing likely.
• Jackson Hole Symposium will be the decisive event shaping USD momentum this week.

This analysis highlights why the US Dollar Index outlook remains bearish in the short term, but highly sensitive to geopolitical triggers and Fed policy guidance. For professional forex traders, hedge fund managers, and institutional investors, staying ahead of these macro drivers is essential for capturing directional opportunities in FX, commodities, and bond markets.