The US dollar index has slipped over the past week as more traders expect the to cut rates. It is trying to hold on to the rebound that began near 96.55, but soft US data and stronger major currencies are keeping it stuck around 99. The risk of more weakness is growing.
Fed Focused Data Destabilizes US Dollar
on December 3 showed that the private sector shed 32,000 in November. Markets had expected a gain of about 5,000, so this drop strengthened the view that the labor market is cooling. That shift put early pressure on the US dollar and supported the idea that the Fed may move toward gradual rate cuts rather than a sharp pivot.
On the same day, came in at 52.6. It still showed growth because it stayed above 50. The rise was mild and did not point to strong or inflation-driven expansion. When viewed together with the weak ADP report, the message is clear. Growth continues but at a slower pace. This mix softens the case for a strong US dollar built on firm growth and higher rates.
The market is focused on the Fed meeting ahead. A 25 basis point cut is already heavily priced in. Big investment banks have also shifted toward a December cut in their reports, which has increased pressure on the US dollar in the past few days. The US dollar index (DXY) has drifted lower through the week and has now slipped under key psychological and technical levels.
There is another twist. Official macro data has a major gap because of the 43-day government shutdown. and figures for October are missing, so the BLS will release them only on December 16 and 18. This means the Fed will walk into the meeting without a full set of essential data. Instead of offering a stable backdrop for the US dollar, this gap encourages expectations of a careful rate cut and keeps the DXY on a softer path.
The University of Michigan consumer confidence index rose from 51 to 53.3 at the start of December. This helps sentiment a little, yet it does little to change the broader sense of economic fragility.
Global Currencies and Risk Perception Reflected in US dollar
The DXY is influenced not just by the US but also by the other currencies in its basket. The picture supporting the US dollar is not perfect on this front either.
In the Eurozone, annual inflation edged up from 2.1% to 2.2% in November. This reinforced expectations that the European Central Bank will delay an early rate cut. While higher inflation supports the euro, the resulting rise in EUR/USD has become a key factor weighing on the US dollar index.
In Canada, the Bank of Canada kept its at 2.25% and inflation within target, reducing the likelihood of further rate cuts. A relatively “tighter” BoC supports the Canadian dollar, providing an alternative to the US dollar.
Meanwhile, the strengthened against the US dollar in early December. Signals of tightening from the Bank of Japan, along with the gradual unwinding of carry trades, pushed the yen higher. Since the yen has a significant weight in the DXY basket, this helped push the US dollar index lower.
Weakening signals from China’s economy are reducing risk appetite. The services PMI fell to a five-month low, raising growth concerns. This can prompt investors to move away from riskier global assets and occasionally boost demand for the US dollar as a safe haven.
Rising oil prices, driven by supply risks from Russia and Venezuela and new G7-EU sanction talks, also support the US dollar in the medium term by lifting inflation expectations for energy.
Geopolitical risks, including tensions in Ukraine and the Middle East, help maintain the US dollar’s safe-haven appeal. These factors are currently limiting the DXY’s decline rather than pushing it higher.
Technical Outlook on the US dollar
On the daily chart, the DXY had formed a short-term rising channel, climbing from a low of 96.55 in mid-September up to November. By late November, the lower band of this channel broke, and the index started moving sideways in a weaker range between 99 and 99.5, below both the broken channel support and short-term EMAs (8 and 21).
A key resistance sits at 99.72, based on Fibonacci retracements from the year’s first-half downtrend. With the index hovering below this level and the 89-day EMA near 99, the short-term EMAs point downward, indicating that bearish momentum remains. Unless the DXY can hold above 99.7, the technical picture does not signal a renewed strengthening of the dollar.
The key short-term support for the DXY is around 98.50, near the 0.144 Fibonacci level and the 98.5–99 band. This area aligns with previous lows and the middle of a wide horizontal range, acting as a defense for the index. A daily close below 98.5 could lead to a deeper drop toward the September low of 96.55.
On the upside, the first major resistance is in the 100–100.2 range, where the lower band of the broken channel and the 0.236 Fibonacci level at 99.72 converge. A strong break above this level could trigger a rally toward 101–101.7 (0.382 Fib). However, this should be seen as a correction within the downtrend, not a full trend reversal, as movements below 103.25 (0.5 Fib) remain technically part of the broader downtrend.
The Stochastic RSI is near the oversold zone, suggesting occasional upside attempts from the 98.5–99 support band. For a stronger rebound, the DXY would need to settle above 99.7 and confirm momentum with daily closes above 100.2.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.
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