Dollar Claws Back Losses on FOMC Split, But 2025 Bears Remain in Control

The US Dollar Index (DXY) extended its recovery for a second consecutive session on Wednesday, climbing to near 98.50 during Asian trading hours. The rebound comes on the heels of the December FOMC minutes, which revealed a distinct split within the Federal Reserve regarding the trajectory of interest rates heading into 2026.

While the greenback is enjoying a short-term lift from the hawkish undertones of the minutes—where some officials argued for a pause in rate cuts—the broader picture remains grim. The index is on track to record a yearly decline of nearly 10%, one of its poorest performances in years, driven by the Fed's pivot to easing and ballooning US fiscal deficit concerns.

FOMC Minutes: The Divide Deepens

The minutes from the December meeting highlighted a central bank at a crossroads. While the Fed delivered a 25 basis point cut last month—bringing the target range to 3.50%-3.75%—policymakers are increasingly divided on the next steps:

Despite this internal debate, markets are still pricing in approximately two additional rate cuts in 2026, creating a divergence that continues to cap the Dollar's upside potential.

Technical Outlook: A Dead Cat Bounce?

Analysts warn that the current move to 98.50 appears to be a technical correction rather than a trend reversal. The DXY remains firmly below critical medium-term moving averages. Unless the index can reclaim the 99.00 handle, the path of least resistance remains lower, with sellers likely to re-emerge on rallies.