US Dollar Forecast: Falls on Fed Rate Cut Bets and Trade Tensions – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) slipped to a one-week low near 98.60 during Thursday’s Asian session, marking its third straight day of losses. The currency remains under pressure as traders anticipate a softer stance from the Federal Reserve and monitor ongoing political and trade developments.

Dovish Fed Outlook Pressures the Dollar

Expectations of rate cuts continue to weigh on the Greenback. Markets have nearly fully priced in two 25-basis-point reductions in October and December, signaling a shift toward a more accommodative policy.

This outlook has weakened investor confidence in the dollar’s short-term recovery, with monetary easing seen as limiting further upside momentum.

Government Shutdown and Trade Risks Add Headwinds

Extended political gridlock in Washington is amplifying uncertainty. The US government shutdown has stretched into its third week, with no progress on the funding bill.

Meanwhile, renewed US-China trade frictions are fueling additional pressure. Recent moves—including tighter technology restrictions and reciprocal port fees- have escalated tensions, dampening market sentiment.

Outlook: Key Fed Speeches Ahead

Investors are now focused on upcoming remarks from Federal Reserve officials for policy direction. Developments surrounding the shutdown or trade relations may further influence the DXY’s path in the sessions ahead.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is consolidating near $98.58 after breaking below its short-term ascending trendline. The price now faces resistance at $98.77 (50-EMA) and $99.00, while support lies at $98.20 and $98.03. A sustained drop below this zone could open the way toward $97.25.

The 200-EMA at $98.24 is acting as a pivot level, suggesting indecision between bulls and bears. The RSI near 38 indicates weak momentum, with sellers maintaining slight control.

A rebound above $98.77 could help DXY retest $99.57, but a continued failure to reclaim this area would reinforce a bearish bias. For now, traders are monitoring whether the index can stabilize above the 200-EMA to avoid deeper losses.

GBP/USD Technical Analysis

The GBP/USD pair is trading around $1.3435 after breaking above a descending trendline, signaling early signs of a potential bullish reversal. The price is now testing the 200-EMA near $1.3430, which serves as immediate resistance, while the 50-EMA at $1.3376 provides nearby support.

If buyers hold above $1.3400, the pair could aim for $1.3526 and $1.3593, aligning with previous swing highs. However, failure to sustain above the EMAs may trigger a pullback toward $1.3320.

The RSI near 64 indicates improving momentum but is approaching overbought territory, suggesting a possible short-term pause before further gains. Overall, GBP/USD shows bullish potential as long as it stays above $1.3400, with higher targets likely on a confirmed breakout.

EUR/USD Technical Forecast

The EUR/USD is trading near $1.1655, testing the upper boundary of its descending channel after rebounding from $1.1540 support. The pair is hovering around the 50-EMA at $1.1633, while the 200-EMA near $1.1679 acts as key resistance. A sustained break above this area could confirm a short-term reversal, opening room toward $1.1720 and $1.1778.

However, if the price fails to hold above the channel top, it could resume its downtrend toward $1.1540 and $1.1487. The RSI near 59 suggests improving momentum, but not yet strong enough to signal a clear breakout.

Overall, EUR/USD remains cautiously bullish in the short term, with buyers needing a close above $1.1680 to confirm a trend shift.