The US dollar declined on Friday, May 16, 2025, as softer-than-expected inflation reports reinforced market expectations of upcoming interest rate cuts by the Federal Reserve.
Dollar slips alongside Treasury yields
The US Dollar Index (DXY) dropped 0.18% to 100.57, falling in step with Treasury yields after April’s Producer Price Index (PPI) and Consumer Price Index (CPI) came in below forecasts. The 10-year yield dipped to 4.44%, while the 2-year yield edged lower to 3.96%.
These data points suggest that inflationary pressure is cooling, strengthening the case for at least two rate cuts by the Fed before the end of the year. Markets are currently pricing in 56 basis points of rate cuts by December, up from 49 bps just a day earlier.
Forex snapshot: dollar under pressure
- EUR/USD: Up 0.1% to $1.1197
- GBP/USD: Steady at $1.3309
- USD/JPY: Down 0.26% to 145.30
- AUD/USD: Up slightly to $0.6406
- NZD/USD: Down 0.02% to $0.5874
The dollar also dropped sharply against the South Korean won, declining two consecutive days following reports of US-South Korea talks on currency market dynamics. The greenback was last down 0.14% to 1,394.70 won.
Fed Chair Jerome Powell said Thursday that the Federal Open Market Committee (FOMC) would now weigh inflation risks more heavily than employment metrics when shaping monetary policy. This pivot suggests the bar for additional rate cuts could rise if inflation remains sticky.
However, April’s soft inflation readings—PPI up just 2.4% YoY and CPI at 2.3%—are helping anchor expectations that the Fed will still act.
What’s next for the dollar?
The Dollar Index faces technical resistance near 100.80 and 101.15, with support seen around 100.00 and 99.84. For now, the trend remains tilted bearish unless the index can decisively reclaim the 101 handle.
Traders are also watching today’s University of Michigan Consumer Sentiment Index for May. A weak reading could deepen the dollar’s slide heading into the weekend.
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