US Dollar Forecast: DXY Struggles at 99.949 as Yields Rise, Foreign Demand Fades

Dollar Index Struggles at 99.949 as Yields Rise and Foreign Sellers Emerge

The U.S. Dollar Index (DXY) is pressing against a key short-term pivot at 99.949, recovering slightly from a two-week low at 99.333. While price action appears firming, traders remain cautious. Dollar support from rising yields is now competing with growing evidence of foreign outflows and bond market strain, making this level pivotal for direction in the days ahead.

At 15:41 GMT, the U.S. Dollar Index is trading 99.872, up 0.184 or +0.18%.

Tariff-Driven Inflation Bumps Fed Rate Cut Hopes—But at What Cost?

S&P Global’s flash PMI data showed May output improved across both services and manufacturing, with the latter climbing to 52.3—a three-month high. But this rebound is inventory-heavy, driven by front-loading ahead of expected tariff disruptions. Manufacturing input inventories posted a record surge, while supplier delivery times worsened to their lowest level since late 2022.

Price data painted an even sharper picture: manufacturing output prices jumped at their fastest pace since September 2022, while services hit their highest since April 2023. These inflation prints, directly tied to tariffs, are likely to reinforce the Fed’s higher-for-longer posture—at least in the near term. That’s lending some support to U.S. yields and, by extension, the dollar.

Foreign Demand for U.S. Assets Slips as Deficit Outlook Deteriorates

Yet that yield support has its limits. A poorly received 20-year bond auction and a ballooning deficit projection from Trump’s tax bill—estimated to add $3.8 trillion in debt—are weighing on sentiment. Foreign investors have begun scaling back exposure. The dollar’s dip to 142.80 yen earlier this week reflects this tension: rising yields aren’t proving attractive enough to offset deficit concerns and political risk.

Bond Market Risks Undermining Dollar Support

While 30-year Treasury yields tested the 2023 high of 5.17% before retreating, the bigger concern is that even elevated yields are failing to draw solid foreign demand. This disconnect is key: it signals that the usual relationship—where higher yields buoy the dollar—is breaking down in the face of structural selling pressure. The “Sell America” theme, fueled by weak auctions and credit downgrade risks, continues to ripple through forex markets.

Outlook: Dollar Needs a Clean Break Above 99.949—Or Risk Deeper Selling

With the dollar holding just under the 99.949 pivot, near-term momentum remains uncertain. A clean breakout could bring in short-term buyers, but sustained foreign selling and weak Treasury demand may keep upside capped. If the pivot fails, expect sellers to test support near 99.172, especially if the bond market fails to stabilize. The path forward hinges not just on yields, but whether anyone is willing to buy them.

More Information in our Economic Calendar.