US Dollar Forecast: Dollar Gains as Traders Cut Rate-Cut Bets Ahead of Fed Minutes

Author: James Hyerczyk

Published: February 17, 2026

Key Points

• The U.S. Dollar Index (DXY) is experiencing a surge as markets adjust their expectations regarding Federal Reserve rate cuts, influenced by strong jobs and inflation data.
• Hedge funds are unwinding their bearish positions on the dollar, as recent economic reports weaken the case for aggressive rate cuts.
• The DXY faces significant resistance around the 98 level, with key moving averages and swing tops posing challenges for a trend reversal.

Market Overview

The U.S. Dollar Index is trading higher against a basket of major currencies as investors await the minutes from the Fed's last meeting and key economic data later in the week. The recent economic data, including January's Non-Farm Payrolls and consumer inflation figures, has led to a reassessment of the Fed's potential rate-cut path.

Economic Data Impact

Last week's economic data has prompted a more pronounced reaction in the markets. Initial responses were muted, but the subsequent price surge indicates that traders are reconsidering the implications of the jobs and inflation numbers. The data suggests that the Fed may not need to implement three rate cuts in 2026, as previously anticipated.

Hedge Fund Activity

According to Bloomberg, hedge funds have reduced their bearish bets against the dollar, as the economic data does not support their earlier positions. Currently, money markets are pricing in approximately 61 basis points of rate cuts by the end of the year, a decrease from the earlier expectation of 75 basis points.

Inflation Focus

Fed Chairman Jerome Powell has indicated that inflation is now the primary concern for policymakers, rather than the labor market. Recent data shows that while inflation is not accelerating, it remains above the Fed's target of 2%, reinforcing the need for careful monitoring.

Technical Analysis

From a technical perspective, the main trend for the DXY remains down, with significant resistance levels identified. The swing chart indicates that a trend reversal to the upside will occur if buyers can surpass the last swing top at 97.973, which is close to the 50-day moving average at 98.039. The 200-day moving average at 98.478 also presents a formidable barrier.

Support and Resistance Levels

The nearest support level is identified within a retracement zone between 96.762 and 96.476, which previously halted selling pressure. A potential counter-trend rally may be forming, but significant resistance must be overcome for a sustained upward movement.

Conclusion

As uncertainty regarding the Fed's future actions persists, the DXY may continue to fluctuate within a range. The upcoming Fed minutes and economic data will be crucial in shaping market expectations and influencing the dollar's trajectory.