US Dollar Forecast: Rises on Safe-Haven Demand as Political Tensions Escalate — GBP/USD and EUR/USD

Market Overview

During the European trading session on Wednesday, the US Dollar Index (DXY) advanced for a third straight day, hovering near 98.90. The Greenback gained as investors sought safety amid the ongoing US government shutdown, which continues to dampen sentiment and increase uncertainty.

Political Tensions Bolster Safe-Haven Demand

Investor caution deepened after President Donald Trump warned of potential federal worker layoffs, signaling prolonged political gridlock. Despite the threats, Democrats remain defiant, showing little sign of compromise.

The escalating standoff has intensified the market’s risk-off tone, driving demand toward the USD and helping the Dollar Index maintain a firm position.

Fed Rate Cut Bets Cap Upside Momentum

While safe-haven demand supports the Dollar, rate-cut expectations are curbing its upside. The CME FedWatch Tool shows a 95% probability of a 25-basis-point cut in October and an 83% chance of another in December.

Markets anticipate a more dovish Fed stance as policymakers aim to cushion growth risks amid political and economic headwinds.

Mixed Fed Remarks Fuel Uncertainty

Comments from Fed officials offered a mixed policy outlook. Governor Stephen Miran linked inflation to “population increases,” hinting at patience on further tightening.

In contrast, Minneapolis Fed President Neel Kashkari struck a cautious note, warning it was too soon to assess inflation persistence but remained optimistic on jobs. The divergence underscores policy uncertainty ahead of the FOMC Minutes, keeping traders alert.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is trading near 98.77, holding above its short-term ascending trendline that has guided the recovery since late September. The index recently tested the 99.00 area before facing mild resistance, suggesting a short pause in momentum. Both the 50-EMA (98.08) and 200-EMA (97.89) are trending upward, confirming the underlying bullish structure.

The RSI at 69 indicates strong momentum but is approaching overbought territory, hinting at potential consolidation before another push higher. Immediate support lies at 98.49, followed by 98.00.

Resistance levels are seen near 99.10 and 99.35. A breakout above 99.10 could target 99.70, while a dip below 98.50 might trigger a short-term correction.

GBP/USD Technical Analysis

The GBP/USD pair is trading near $1.3424, facing resistance at the descending trendline from late September. Price action remains below both the 50-day EMA ($1.3451) and 200-day EMA ($1.3478), reinforcing a bearish structure. The recent failure to hold above $1.3450 signals continued selling interest, with downside targets emerging at $1.3380 and $1.3327.

The RSI at 46 reflects neutral-to-weak momentum, showing limited buying strength. A sustained break below $1.3380 could expose $1.3260; reclaiming $1.3470 would be necessary to shift sentiment. As long as prices trade below the descending trendline, the broader bias for GBP/USD remains tilted to the downside.

EUR/USD Technical Forecast

The EUR/USD pair is trading near $1.1633, staying under pressure within a well-defined descending channel. The pair recently broke below the $1.1670 support zone, which has now turned into resistance, confirming a bearish continuation setup. Both the 50-EMA ($1.1708) and 200-EMA ($1.1711) slope downward, signaling persistent selling momentum.

The RSI at 33 suggests oversold conditions, but no bullish divergence has yet emerged, indicating that sellers still dominate. If the price fails to reclaim $1.1670, it could resume its decline toward $1.1590 and $1.1570.

However, a close above $1.1670 may trigger a short-term correction toward $1.1700; however, the broader bias remains bearish while the price remains below $1.1750.