US Dollar Forecast: Slides as US Inflation Data Fuels Dovish Fed View, GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) extended losses for a second session in early European trade, approaching two-week lows near 97.87. July’s US inflation data reinforced expectations for a Federal Reserve rate cut in September.

Headline CPI matched forecasts and eased slightly year-on-year, but core CPI, excluding food and energy, came in just above projections, underscoring persistent inflation pressures.

Market Sees September Cut as Likely

Mixed inflation readings have strengthened expectations of a 25-basis-point cut next month, with additional easing possible before year-end. The CME FedWatch Tool shows September as the most probable starting point for policy adjustment.

This dovish shift has pressured the DXY, prompting traders to scale back long USD positions ahead of potentially lower yields.

Debt Concerns and Political Risk Add to Pressure

The dollar also faces headwinds from renewed tariff tensions and a record US national debt exceeding $37 trillion. The Congressional Budget Office estimates recent legislation will add $4.1 trillion over the next decade.

Political risk has intensified after President Trump publicly criticized Fed Chair Jerome Powell, hinting at legal action over alleged mismanagement.

The remarks have revived concerns about central bank independence, further dampening the Greenback’s appeal.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is trading at 97.87, consolidating just below the 97.94 resistance zone after a recent decline. Price action remains capped under the 50-EMA (98.09) and 100-EMA (98.27) on the 2-hour chart, reflecting persistent downside pressure.

The RSI is recovering from oversold territory but remains subdued, suggesting limited bullish momentum. A rejection from 97.94 could lead to a retest of 97.50, with further weakness targeting 97.12 and 96.71.

Conversely, a sustained move above 97.94 would be needed to challenge the 98.63 level, potentially delaying further declines.

GBP/USD Technical Analysis

GBP/USD is consolidating near 1.3590 after an extended rally from early August lows, holding above both the 50-EMA (1.3494) and 100-EMA (1.3444) on the 2-hour chart. The pair remains within an ascending channel, signaling sustained bullish momentum, though the RSI hovering near overbought territory (73.6) suggests upside momentum may be slowing.

A breakout above 1.3590 could open the door for a push toward 1.3678, followed by 1.3700 and 1.3750. Conversely, a pullback below 1.3517 would expose 1.3455, with deeper losses risking a test of 1.3398.

EUR/USD Technical Forecast

EUR/USD is consolidating near 1.1680 after testing the 1.1725 resistance, with price action supported by a rising trendline from the August lows. The 50-EMA (1.1666) and 100-EMA (1.1642) are positioned just below, providing near-term dynamic support.

RSI has retreated from overbought levels, suggesting a cooling of momentum, but the broader bias remains constructive while holding above 1.1648. A rebound from the EMAs could see bulls retest 1.1725, with a breakout targeting 1.1778.

Conversely, a close below 1.1648 may expose 1.1588, aligning with prior horizontal support. Overall, the pair remains in an ascending structure, with buyers likely defending the 1.1640–1.1580 zone unless macro catalysts shift sentiment.