US Dollar Forecast: Rate Cut Bets and China Talks Shape Momentum – GBP/USD and EUR/USD

Market Overview

During Asian trading hours on Friday, the US Dollar Index (DXY) remained steady around 97.55, extending its gains for a second consecutive session. The dollar’s strength is driven by robust US economic data and optimism surrounding trade agreements with Japan and China, as markets await the Federal Reserve’s upcoming policy decision.

PMI Data Underscore Services Strength, Mixed Sector Outlook

The rally in the dollar follows stronger-than-expected Services PMI data, with S&P Global reporting a rise to 55.2 in July, up from 52.9 and beating expectations of 53.0.

The Composite PMI also improved to 54.6, signaling steady economic momentum. However, Manufacturing PMI slipped to 49.5, suggesting softness in the industrial sector.

Trade Agreements and China Talks Add Tailwinds

Confidence in the dollar was further supported by news of a new US-Japan trade agreement. The US plans to impose a 15% tariff on Japanese imports, while Japan has committed to investing $550 billion in the US.

Additionally, Treasury Secretary Scott Bessent is set to meet Chinese officials in Stockholm to discuss extending a key trade deadline. A failure to do so could trigger tariffs as high as 145%, adding volatility to global markets.

Fed Holds Rates Steady, Markets Eye September Cut

With the FOMC meeting approaching, expectations are for rates to remain unchanged in July. However, markets are already pricing in a 60% chance of a 25bps cut in September, leaving traders closely attuned to upcoming Fed signals.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index is holding steady near 97.55, stabilizing after a recent bounce off 97.11 support. Despite recovering from a sharp midweek sell-off, upside momentum appears capped below the 97.94 resistance zone and the 100-period EMA.

The dollar’s rebound aligns with stronger-than-expected U.S. economic data, including a drop in jobless claims and robust PMI figures. However, with rate cut speculation ahead of the July 30 FOMC meeting, gains may be limited.

A decisive break above 97.94 could target 98.30, while failure to hold 97.11 risks revisiting 96.74.

GBP/USD Technical Analysis

GBP/USD is retreating after failing to sustain above the 1.3510 level, reversing from the 100-period EMA and a descending trendline resistance. The pair is now trading around 1.3469, and a break below 1.3435 could expose further downside toward 1.3376.

A clear bearish structure is forming, with lower highs confirming seller dominance after the recent rally stalled near 1.3588. Both EMAs are beginning to flatten, hinting at potential consolidation before a larger directional move.

The short-term bias remains bearish unless bulls reclaim 1.3510, which would open the door for a retest of the downtrend line and potentially 1.3588. For now, sellers remain in control with momentum favoring a corrective path lower.

EUR/USD Technical Forecast

EUR/USD trades at 1.1750, supported by a well-defined rising channel extending from the 1.1615 base. The pair is benefiting from a softer dollar and improved eurozone sentiment, holding above the key 1.1739 support zone.

Technicals remain bullish with price above both the 50 and 100 EMAs, which are rising. Immediate resistance lies at 1.1788, followed by 1.1828, a breakout zone last touched earlier this month.

A close below 1.1700 would weaken bullish momentum and expose 1.1655 as the next key support. So long as price holds above 1.1700, the bias remains tilted to the upside.