US Dollar Forecast: Fed’s Dovish Tilt Pressures Greenback, GBP/USD and EUR/USD

Market Overview

During Monday’s Asian session, the US Dollar Index (DXY), which measures the Greenback against six major currencies, eased toward 98.00, giving back part of last week’s advance. The move followed softer US labor market figures, with Initial Jobless Claims rising and July’s Nonfarm Payrolls showing slower hiring.

These reports have strengthened expectations that the Federal Reserve may adopt a more accommodative stance in the months ahead.

Fed Rate Cut Outlook Strengthens

Market sentiment turned more dovish after Fed Governor Michelle Bowman signaled that three rate cuts could be appropriate this year, citing the labor market’s weakness as a greater risk than inflation.

St. Louis Fed President Alberto Musalem described US economic activity as stable but vulnerable, warning of downside risks to employment.

The CME FedWatch Tool now shows an 89% chance of a September rate cut, up from 80% last week, with another move possible in December.

Key Data Releases Ahead

This week’s focus will be on US consumer inflation data, Thursday’s Producer Price Index (PPI), and preliminary UK Q2 GDP. Any signs of slowing price growth or weaker economic activity could reinforce expectations of deeper Fed easing, keeping downward pressure on the DXY in the near term.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at 98.09, consolidating below the 50-EMA at 98.49 and the 100-EMA at 98.43. The short-term structure suggests potential weakness, with price failing to hold above the 98.48 resistance.

A break below 98.00 could open the path toward trendline support near 97.84, aligning with the next horizontal level at 97.50. RSI at 40.07 reflects subdued momentum, keeping sellers in control unless a sustained close above 98.48 occurs.

If the rebound materializes, upside targets remain limited to 99.07, while a downside continuation could extend losses toward 97.12. Near-term bias leans bearish unless sentiment shifts with incoming U.S. inflation data.

GBP/USD Technical Analysis

GBP/USD is trading at 1.3467, testing a key resistance zone near 1.3475. The pair remains supported by the 50-EMA at 1.3389 and the 100-EMA at 1.3368, while an ascending trendline continues to guide price higher. A breakout above 1.3475 could open the door toward 1.3524, followed by 1.3587.

On the downside, immediate support lies at 1.3417, with further levels at 1.3365 and 1.3311 if sellers regain control.

The RSI at 67 is nearing overbought territory, suggesting bulls have strong momentum but may face consolidation if resistance holds. The bias stays bullish while above 1.3417, but a pullback toward the EMAs could be healthy before the next leg higher.

EUR/USD Technical Forecast

EUR/USD is trading at 1.1666, holding above both the 50-EMA (1.1628) and 100-EMA (1.1610), indicating short-term bullish momentum. The pair is respecting an ascending trendline, with immediate resistance seen at 1.1700. A breakout above this level could target 1.1778, followed by 1.1847.

On the downside, a drop below 1.1629 would expose 1.1571 and 1.1516 as key support levels. The RSI at 57.88 suggests moderate bullish momentum, leaving room for further upside before entering overbought territory. Overall, the bias remains constructive while above 1.1629, but failure to break 1.1700 could trigger a short-term pullback.