https://docs.unrealengine.com/latest/FRA/Engine/Content/Types/Textures/Importing/index.html
Here you can see what image types are supported. Can you check if the .dds is 32bit texture?
edit: theese seems to be the settings you should go for when using .dds " (32bits/Channel, 8.8.8.8 ARGB 32 bpp, unsigned) See Cubemap Tools for more information."
Moore info on .dds can be found here: https://docs.unrealengine.com/latest/FRA/Engine/Content/Types/Textures/Cubemaps/CubemapTools/index.html