US Dollar Forecast: Political Uncertainty and PCE in Focus Ahead of FOMC – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) stalled near 98.80 during Wednesday’s Asian session, halting a four-day rally as markets turned cautious ahead of the Federal Reserve’s policy announcement.

While the Fed is expected to hold rates steady at 4.25%–4.50%, traders are more focused on forward guidance. A subtle shift toward a possible September rate cut could influence near-term dollar sentiment.

Key Data to Watch: PCE and Payrolls

Upcoming Q2 PCE inflation and July Nonfarm Payrolls figures will offer deeper insight into the economy’s direction. Signs of cooling inflation or weaker job growth could reinforce expectations of a policy pivot later this year.

These data points, combined with the Fed’s tone, are likely to drive next steps for the dollar.

Fed Independence Faces Renewed Political Scrutiny

Tensions are also mounting around Fed Chair Jerome Powell. Speculation about former President Trump’s potential return and criticism of Powell have revived concerns over the central bank’s independence.

While no immediate threat is evident, uncertainty around leadership adds a layer of market risk.

US-China Trade Talks Fail to Progress

Talks in Stockholm between US and Chinese officials ended without an extension of the current tariff truce. With the deadline approaching, uncertainty over trade policy adds further pressure to the dollar’s trajectory.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is trading near 98.83, maintaining its recent recovery after climbing from a weekly low around 97.48. The index recently tested 99.13 but has since consolidated near the 23.6% Fibonacci retracement at 98.75.

Technical structure suggests a short-term bullish bias as the price remains above both the 50-period EMA (98.62) and the 100-period EMA (98.33). The ascending trendline from July 25 continues to provide support, while momentum indicators remain stable.

A breakout above 99.14 could clear the path toward 99.38 and 99.66. However, a drop below 98.51 (Fib 0.382) would hint at a deeper correction toward 98.12 or 97.83.

GBP/USD Technical Analysis

GBP/USD continues to trade within a defined descending channel on the 2-hour chart, showing sustained bearish pressure. Price action remains capped below the 50- and 100-period EMAs, both sloping downward.

The pair recently tested the channel’s upper boundary but failed to produce a breakout, indicating a lack of bullish conviction.

Momentum indicators suggest consolidation near the midline, but without a decisive push above 1.3367, downside risk remains intact. A clear rejection from the channel top would reinforce bearish continuation toward the 1.3230 zone.

EUR/USD Technical Forecast

EUR/USD remains under pressure after breaking below the ascending trendline and the 100-period EMA on the 4-hour chart. The pair is struggling to reclaim the 23.6% Fibonacci retracement of the recent drop, indicating weak buyer momentum.

Price is consolidating near the 1.1550 zone, showing signs of a potential bear flag formation. Both 50- and 100-EMA slopes point lower, reinforcing bearish bias. If the pair fails to regain the 1.1610 area, sellers may look to retest the recent swing low.

A decisive break above the 38.2% retracement would be needed to invalidate the current bearish setup and shift focus back toward the 1.1670–1.1710 region.