USD Forecast: Dollar Stalls as September Rate Cut Odds Clash with Tariff Truce Optimism
2025-08-12 12:20:09
- Dollar faces cross-currents as 84.5% September rate cut odds collide with optimism from the U.S.–China 90-day tariff truce.
- Traders eye CPI data as the decisive catalyst for a breakout above 98.80 or breakdown below 98.20.
- Technical range persists between daily and 4H Fair Value Gaps, with upside targets at 99.50 and downside risk toward 96.40.
The U.S. Dollar Index is caught between potential aggressive rate cut pricing and improved global trade sentiment.
After rebounding in July, the dollar has entered August with mixed signals. Political pressure on the Federal Reserve, including Trump’s nomination of Stephen Miran as a temporary Fed governor, has deepened concerns over central bank independence and tilted markets toward dovish bets.
At the same time, Washington and Beijing’s agreement to a 90-day tariff truce removes a major layer of trade uncertainty, bolstering risk appetite and limiting the greenback’s safe-haven flows. Traders are now laser-focused on this week’s CPI data to determine the dollar’s next major move.
News Impact on the U.S. Dollar
Rate Cut Probability at 84.5%
- According to the CME FedWatch Tool, markets are pricing in an 84.5% chance of a 25 bps rate cut at the September 17 FOMC meeting, versus only 15.5% for no change and 0% for a hike.
- This heavy dovish skew reflects weak July labor data, ongoing inflation moderation, and rising political influence over the Fed.
90-Day U.S.–China Tariff Truce
- The U.S. and China agreed to pause new tariffs for 90 days to restart trade talks. This removes a layer of geopolitical risk, encouraging capital rotation into equities and higher-yielding currencies — at the dollar’s expense.
CPI & Macro Data Ahead
- CPI is the key catalyst this day. A hot print could temporarily reverse rate cut bets, while a soft print would lock in September easing expectations.
Technical Outlook
The U.S. Dollar is trading at 98.50 levels, consolidating after rejecting both upside continuation from the recent Fair Value Gap and the bottom of the Daily Fair Value Gap between 97.90 - 98.60 range.
Price Action & Key Levels
- Daily Fair Value Gap (D1 FVG): Acts as a key support zone around the 97.90 - 98.60 range.
- H4 Fair Value Gap: Serving as a short-term resistance near 98.30–98.50.
- Current price is trapped between support at D1 FVG and resistance at H4 FVG, creating a short-term range.
Bullish Scenario
A clean break and hold above 98.80 level could trigger a push toward 99.20–99.50.
- If momentum accelerates, psychological round number 100.50 is the extended target, aligning with the upper range from late July.
- Bullish momentum would likely require a hot CPI print or hawkish shift in Fed tone despite the high rate cut odds.
Bearish Scenario
Failure to break above 98.80 followed by a decisive move back below 98.20 could invite a retest of 97.50–97.00.
- A break below the D1 FVG low (97.80) opens the path toward 96.40, which is the next significant liquidity pool.
- A soft CPI print and sustained dovish Fed expectations (84.5% rate cut odds) would reinforce this downside path.
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