US Dollar Price Forecast: DXY Weakens After Fed Signals – Are GBP/USD and EUR/USD Set to Break Higher?

Market Overview

Despite the nomination of Kevin Warsh as the next Federal Reserve chair, the broad-based US Dollar failed to extend its upward trend and turned bearish. As of now, the US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against six major currencies, is slightly lower after two days of gains, trading near 97.30.

However, the reason for its fresh selling pressure is the market’s expectation of future Fed rate cuts, which continues to weigh on the Greenback.

Fed Comments Reinforce Rate-Cut Bets, Weighing on the US Dollar

As we mentioned, the ongoing expectation of two additional Fed rate cuts in 2026 is weighing heavily on the US dollar, keeping investors hesitant to buy it. However, the US President Donald Trump’s nomination of Kevin Warsh as the next Fed chair raised hopes that the central bank might be less dovish, but traders still expect two more rate cuts this year.

These hopes were largely driven by comments from Fed officials. Fed Governor Stephen Miran said inflation isn’t a big problem, but the Fed should still cut rates by about 1% this year, while Richmond Fed President Thomas Barkin noted that inflation is above target, yet the economy is strong and more progress is expected.

Government Funding Boost Could Limit Dollar

In addition, President Trump signed a spending bill that ended the partial government shutdown and extended funding for several federal agencies. This positive news could help limit the dollar’s losses.

Looking ahead, investors are keeping a close eye on Wednesday’s US ADP jobs report and the ISM Services PMI. These reports will likely affect the US dollar.

US Dollar Index Forecast: Descending Trendline Caps the Recovery

The US Dollar Index is trading around $97.40, holding steady after bouncing back from a low of $95.55. On the 2-hour chart, the price is still below a downward trendline from the January highs, which keeps the overall outlook cautious.

Recent candles show short-bodied sessions near $97.60, highlighting hesitation rather than strong follow-through buying.

DXY is staying above the 50% Fibonacci retracement at $97.22, and the 38.2% level near $96.83 is still strong support. The 200-EMA, which is around $97.60 to $97.70, lines up with the trendline resistance, making this area tough for the price to move higher.

RSI has eased back toward 55, signaling slowing upside momentum without a bearish shift. A clear break above $97.80 would expose $98.25, while rejection keeps risks tilted lower toward $96.80.

Trade idea: Consider buying if the price breaks above $97.80, with a target of $98.25 and a stop loss below $97.20.

GBP/USD Forecast: Rising Trendline Holds as Price Grinds Higher

GBP/USD is trading close to $1.373, showing a modest rebound after staying above the $1.365 to $1.368 support area. On the 2-hour chart, the price is still following a rising trendline from the January lows, which keeps the overall outlook positive. The pair is above the 200-EMA near $1.360, supporting the trend, while the 50-EMA around $1.372 to $1.374 is acting as short-term resistance.

A Fibonacci retracement from the recent swing high shows the price holding above the 38.2% and 50% levels, which suggests the pullback is still just a correction. The RSI has moved up to about 55, showing better momentum but not overbought conditions.

If the price moves above $1.375, it could head toward $1.386. But if it falls below $1.365, the outlook would become weaker.

Trade idea: Consider buying near $1.368, with a target of $1.386 and a stop below $1.358.

EUR/USD Forecast: Trendline Support Holds as Bulls Eye $1.20 Again

EUR/USD is trading around $1.183, steady after pulling back from the $1.20 high. On the 2-hour chart, the price is following a rising trendline that has supported the move up since mid-January, keeping the overall outlook positive.

The pair is staying above the 200-EMA at about $1.178, while the 50-EMA near $1.186 is acting as short-term resistance. This puts the price in a narrow range. The RSI has moved back toward 50, showing that momentum is picking up but not overextended.

If the price moves above $1.190, it could head back toward $1.20. But if it falls below $1.178, there is a risk of a bigger drop to $1.170.

Trade idea: Consider buying on dips near $1.178, aiming for $1.20, with a stop just below $1.170.