US Dollar Index Forecast: CPI in Focus as DXY Firms vs EUR/USD, GBP/USD

Market Overview

The US dollar managed to stop its previous bearish trend and regained some ground amid combination of factors. As of Tuesday, the Dollar Index is hovering around above 99.00 level. However, the reason for its renewed strength can be attributed to anticipation ahead of the upcoming Consumer Price Index (CPI) data.

Moreover, the concerns over the Fed’s independence have triggered uncertainty in markets. On one hand, fears of political interference could undermine confidence in US monetary policy, putting downward pressure on the dollar.

On the other hand, investors often turn to safe-haven assets in times of uncertainty. Thereby, the US dollar is considered a primary safe haven, which could support or strengthen the currency.

Geopolitical Tensions and Fed Independence Concerns Boost Dollar Demand

It is worth noting that US President Donald Trump said on Sunday that Iran’s leaders have contacted him to “negotiate” after he threatened military action, as big protests continue in the country. But Trump also said, “we may have to act before a meeting,” showing that things could get tense fast. This put pressure on the market sentiment and keep the investors cautious.

Meanwhile, people are buying safe investments because worries are growing about the US Federal Reserve’s independence. Federal prosecutors have threatened to charge Fed Chair Jerome Powell over his testimony about a building renovation, which Powell says is an attempt to weaken the central bank. This has made investors cautious and looking for safer options.

Therefore, the geopolitical uncertainty and Fed independence worries are boosting demand for the US dollar as a safe-haven currency.

Fed Rate Outlook and Inflation Expectations

On the other hand, markets expect the Federal Reserve to cut interest rates twice this year, starting in June. However, if inflation rises more than expected, these rate cuts could be delayed or reduced.

Looking forward, the US Consumer Price Index (CPI) for December is expected to rise 0.3% from the previous month, keeping the annual rate steady at 2.7%. In the meantime, the core CPI, which excludes food and energy prices, is also expected to stay at 2.7%, showing only a small increase. Any sign that inflation is higher than expected could make the US dollar stronger.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index (DXY) is trading near $99.00 on the 4-hour chart after rejecting resistance around $99.27, aligned with the 0% Fibonacci level. Price remains above the rising short-term trendline, with the 50-EMA near $98.85 and the 200-EMA around $98.60 acting as layered support. Recent candlesticks show smaller bodies and upper wicks, pointing to hesitation after the recent advance rather than a reversal.

The broader structure still shows higher lows from the $97.85 base. Fibonacci support is seen at $98.85 (38.2%) and $98.72 (50%), while resistance caps the upside at $99.27–$99.50. The RSI near 58 reflects stable momentum. The trade idea is buy pullbacks near $98.80, targeting $99.50, with a stop below $98.40.

GBP/USD Technical Analysis

GBP/USD is trading near 1.3465 on the 4-hour chart after rebounding from trendline support around 1.3390, reinforcing the broader bullish structure. Price is holding above the 200-EMA near 1.3400, while the 50-EMA around 1.3470 caps immediate upside, signaling short-term consolidation.

Recent candles show long lower wicks, suggesting dip-buying interest rather than distribution. The rising trendline from late November remains intact, keeping higher lows in play.

Key resistance stands at 1.3500–1.3560, while support is layered at 1.3390 and 1.3345. RSI near 52 reflects neutral-to-bullish momentum. The trade idea is to buy pullbacks near 1.3400, targeting 1.3550, with a stop below 1.3340.

EUR/USD Technical Forecast

EUR/USD is trading near $1.1663 on the 4-hour chart after rebounding from trendline support around $1.1620. Price remains below the 50-EMA near $1.1695, while the 200-EMA around $1.1660 is acting as immediate support, highlighting a compressed structure.

Recent candlesticks show small bodies with mixed wicks, reflecting indecision rather than strong directional conviction. The broader trend still holds higher lows from the $1.1550 base, but momentum has softened.

Key resistance stands at $1.1695–$1.1745, while support is layered at $1.1620 and $1.1585. The RSI near 45 suggests weak bullish momentum. The trade idea is to buy near $1.1620, targeting $1.1740, with a stop below $1.1580.