U.S. Dollar Weakens on Fed Rate Pause and Trade Tensions – Analysis For EUR/USD, GBP/USD

Market Overview

The US Dollar Index (DXY) is under pressure, slipping to around $100.61 for the second straight day. This decline comes as US-China trade discussions add uncertainty to the outlook for the greenback.

Treasury Secretary Scott Bessent described recent Geneva talks as “productive,” but significant tariffs remain in place, with the US imposing rates as high as 145% on Chinese imports, while Beijing counters with 125% on US exports.

This ongoing trade friction continues to weigh on the dollar.

Fed Rate Pause Adds to Dollar Pressure

The Federal Reserve recently held rates steady at 4.25%-4.50%, citing persistent inflation and rising unemployment as ongoing challenges. Fed Chair Jerome Powell warned that trade disruptions could complicate the central bank’s balancing act between inflation control and employment growth, adding to market uncertainty.

Traders are now speculating that the Fed might hold off on rate cuts longer than expected, potentially limiting the dollar’s upside in the coming months.

Outlook for the Dollar

Given these challenges, the dollar’s path remains uncertain. Ongoing trade tensions and a cautious Fed stance could keep the dollar under pressure, especially if economic data fails to support a stronger US growth outlook.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is currently trading around $100.61, testing a critical resistance level at $100.86 within an ascending channel. This area aligns closely with the recent swing high, making it a key hurdle for further upside. A decisive break above this level could open the door for a rally toward $101.27, the next significant resistance, followed by the $101.67 mark.

However, if the DXY fails to clear $100.86, it could face a pullback toward the immediate support at $100.32, which also aligns with the 50-day Exponential Moving Average (EMA) at $100.15. A break below this level might expose the index to deeper losses, potentially targeting $99.96 and $99.62 in a more pronounced correction.

Traders should watch for a clear break above $100.86 for bullish confirmation, while a close below $100.32 could signal a shift in momentum.

GBP/USD Technical Analysis

The GBP/USD pair is currently trading around $1.3290, attempting to recover after a sharp decline earlier this week. The pair faces immediate resistance at $1.3296, marked by the 50-day Exponential Moving Average (EMA), which has acted as a dynamic barrier in recent sessions. A break above this level could push the price toward the next resistance at $1.3344, potentially reversing the current bearish momentum.

However, the overall trend remains under pressure as the pair struggles to break above a descending trendline extending from the recent highs. If the pair fails to clear this hurdle, it could slip back toward the key support zone around $1.3210. This area has been a critical demand zone in the past, with a break below potentially exposing the pair to further downside toward $1.3123.

Traders should watch for a sustained break above $1.3296 for bullish confirmation, while a move below $1.3210 could signal a deeper correction.

EUR/USD Technical Forecast

The EUR/USD pair is currently trading around $1.1227, struggling to hold above a critical support level at $1.1215. This area has acted as a significant demand zone in recent sessions, but the broader trend remains bearish as the price continues to trade below the 50-day Exponential Moving Average (EMA) at $1.1277. This dynamic resistance has capped several recovery attempts, highlighting the persistent selling pressure.

On the upside, immediate resistance is seen at $1.1277, followed by $1.1321. A clear break above these levels could open the door for a more sustained recovery toward $1.1373 and $1.1412, potentially shifting the short-term trend to bullish. However, if the pair fails to hold above $1.1215, it could slide toward the next major support at $1.1168, with a further drop potentially targeting $1.1118.

Traders should watch for a decisive break above $1.1277 for bullish confirmation, while a sustained move below $1.1215 could signal a deeper correction.