The US dollar just had a pivotal summer, and the chart tells the story.
The DXY opened July at 101.39 – and never really looked back. Two distinct phases drove the decline.
Two Phases Drive the Dollar’s Decline
Phase 1 – Late July: The FOMC surprised markets by holding rates at 3.75%, triggering a rapid unwind of record short positions on Fed Funds futures. A coordinated US-Japan FX intervention then amplified the move, sending USD/JPY sharply lower and pushing the DXY below 100 for the first time since early 2026.
Phase 2 – Mid-August: Treasury Secretary Bessent announced at least a doubling of long-end debt buyback operations, compressing long-term US yields and adding fresh selling pressure on the dollar. DXY eventually bottomed at 98.56, closing the period at 99.52, down 1.85%.
Notably, repeated hawkish Fed commentary throughout August – including Warsh’s reaffirmation of the 2% inflation target at Jackson Hole – failed to produce any meaningful dollar recovery.
US Dollar Outlook: What Comes Next?
The September FOMC is the next key catalyst. We expect the Fed to hold, given softening in employment and retail sales – though a rate hike remains on the table and could provide a short-term dollar bounce.
Beyond that, the structural case for a weaker dollar remains intact: twin deficit deterioration, eroding US credibility, and a Fed that is falling behind the curve. The only support has come from continued capital inflows into US equities.
Meanwhile, EUR/USD climbed toward 1.16 this summer, peaking at 1.1711 on August 21. The ECB’s hawkish tone – with Schnabel flagging further rate hikes against solid Q2 GDP (+0.4%) and rising PMIs – contrasts sharply with Fed hesitation. We now forecast an ECB hike to 2.50% in September.
Our year-end target: EUR/USD at 1.19.
The dollar’s structural slide has resumed.
Want to discuss the US dollar outlook and what it could mean for markets and your investments? Contact our team to learn more.