US Dollar Forecast: DXY Holds Near Long-Term Support as U.S.-China Trade Talks Begin

Dollar Holds Ground as U.S.-China Trade Talks Take Center Stage

The U.S. Dollar Index (DXY) edged lower Monday, retreating from Friday’s rebound but still holding above critical technical support levels at 98.351 and 97.921. The modest decline reflects a temporary pause in dollar momentum, with markets turning cautious ahead of U.S.-China trade negotiations set to begin in London.

At 14:38 GMT, the U.S. Dollar Index (DXY) is trading 99.130, down 0.072 or -0.07%.

Dollar Retreats After Jobs-Fueled Bounce

Friday’s stronger-than-expected U.S. employment report helped the dollar recover from deeper weekly losses, trimming the DXY’s drop to just 0.1% on the session to 99.12. However, the broader year-to-date decline remains steep at over 8.6%, keeping traders wary. While the report reduced near-term fears about U.S. labor market weakness, the dollar’s safe-haven bid has faded as trade and inflation concerns return to the forefront.

U.S.-China Trade Talks in Focus—Will They Move the Needle?

Market attention is now squarely on high-level trade talks between U.S. and Chinese officials in London. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer will lead the U.S. side, with China’s Vice Premier He Lifeng expected to attend. The discussions follow earlier rounds in Switzerland and come at a sensitive moment for both economies.

Analysts suggest any deal short of a structural breakthrough will do little to shift sentiment. “Unless we see a concrete breakthrough, the impact on sentiment is likely to remain muted,” said Charu Chanana of Saxo Markets. Still, the talks may influence short-term flows in Treasurys and FX as traders reassess geopolitical risk premiums.

Treasury Yields Slip as Inflation Data Looms

Yields on U.S. Treasurys edged lower Monday, with the 10-year slipping to 4.504% and the 2-year down to 4.02%. The move reflects investor caution as markets brace for Wednesday’s CPI report and Friday’s PPI print—both expected to provide critical insights into the inflationary impact of Trump’s recent 10% universal tariff on non-USMCA imports.

Rate cut expectations have moderated, with futures pricing in a 25bps reduction only by October, reflecting the Fed’s patient stance during its pre-meeting blackout period.

Technical Resistance and Upcoming Data Keep Bulls in Check

From a technical standpoint, the DXY faces resistance at the 99.949 and 100.300 pivots, with the 50-day moving average forming a resistance cluster at 100.300. Without a breakthrough in trade talks or a surprise in CPI/PPI prints, upside appears capped in the near term.

Market Forecast: Neutral-to-Bearish Bias Persists

The DXY remains vulnerable below the 100.300 resistance zone, with traders watching 98.351 and 97.921 for potential downside triggers. With no major shift expected from the Fed and global growth risks tied to trade tensions, the dollar’s path remains range-bound to bearish, pending inflation confirmation and trade resolution.

More Information in our Economic Calendar.