US Dollar Forecast: DXY Wobbles After Claims Spike – Are GBP/USD and EUR/USD Poised to Break?

Market Overview

The broad-based US dollar failed to stop its bearish trend and remains under pressure below 98.00. As of now, the US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is trading around the 97.78 level.

However, the reason for its downward trend can be associated with recent US labor data, which indicate a cooling job market and have reinforced expectations of a more dovish Federal Reserve this year.

Weak Jobs Data Boosts Hopes for Fed Rate Cuts

On the data front, the Department of Labor reported that initial jobless claims rose to 231,000 for the week ending January 31, higher than the 212,000 expected and up from 209,000 the previous week. Meanwhile, ADP’s report on private payrolls revealed a modest increase of just 22,000 jobs in January, well below the 48,000 that economists had anticipated. Therefore, the weaker job data could weaken the dollar, as slower job growth raises expectations of possible Fed rate cuts this year.

As a result, the CME FedWatch tool suggests nearly a 77.3% chance that the Federal Reserve will keep interest rates steady at its March policy meeting, with anticipation of the first rate reduction in June. Hence, traders are closely watching the preliminary February Michigan Consumer Sentiment Index, which is due for release later in the North American session, for further clues on economic momentum.

Dollar losses could be limited as Fed stays cautious on rates

Despite some losses in the dollar, it remains near two-week highs, supported by the slowing pace of Fed rate cuts. Fed Governor Lisa Cook stated that she would not support another rate cut without clearer evidence that inflation is easing. She’s more worried about slow progress on inflation than the weak job numbers, showing the Fed is being careful.

US Dollar Index Forecast: DXY Stabilizes After Bounce, Trend Strength Tested Near 98

The US Dollar Index is now around 97.85, having bounced back from its late-January low near 95.60. This move points to a short-term recovery within a larger correction.

The rebound follows a rising channel on the 2-hour chart, and the price is staying above the 50-period EMA near 97.60, which shows that support is holding for now. Still, DXY is below the 200-EMA and faces strong resistance between 98.25 and 98.90, an area that matches previous breakdown points and key Fibonacci retracements.

Momentum indicators show the RSI is close to 55, which suggests the market is steady but not strongly bullish. If DXY moves above 98.30 and holds, the recovery could extend toward 99.50. If it falls below 97.60, it may drop back to support at 96.80 and 96.35.

GBP/USD Forecast: Buyers Defend Trend Support as Pullback Stabilizes Near $1.3550

GBP/USD is trading near $1.3560 on the 4-hour chart after dropping from a recent high close to $1.3850. The price is steady above important support, where the rising trendline from mid-January meets the 200-EMA around $1.3520.

The drop paused near the 61.8% Fibonacci retracement at $1.3580, which suggests that selling pressure is slowing down. Recent candles are smaller and show less downward movement, hinting at a period of consolidation.

RSI has dropped to the low-40s, showing that momentum is slowing but not collapsing. If GBP/USD stays above the $1.3520 to $1.3500 area, the overall bullish trend should hold. A bounce could aim for $1.3690 and $1.3760, but falling below $1.3500 may lead to a move toward $1.3400.

EUR/USD Forecast: Trend Support Holds as Pair Builds Base Near $1.1780

EUR/USD is trading close to 1.1790 on the 4-hour chart. After dropping from its recent high near 1.2050, the price is now steady above an important support area. The pair is staying near the rising trendline from mid-January and just above the 200-period EMA at about 1.1770. This suggests buyers are still supporting the overall upward trend.

Recent price action shows consolidation instead of strong selling, which suggests a pause after the sharp rally. Momentum has slowed, and the RSI is around the mid-40s, showing the market is stabilizing rather than facing new downward pressure.

If the price stays above 1.1770, the outlook remains positive and a rebound toward 1.1890 and 1.1980 is possible. However, if the price falls below the trend support, it could drop further toward 1.1700.