US Dollar Price Forecast: Fed Rate Hike Bets Rise — Will EUR/USD Break Down and GBP/USD Rally?

Market Overview

The U.S. dollar is underpinned by a higher than expected U.S. inflation readings from its April CPI and PPI reports and has boosted expectations for a Federal Reserve rate hike as early as early 2027. Uncertainty from geopolitical conditions in the Middle East from conflicts in the Strait of Hormuz region also supports the safe-haven characteristics of the greenback. Strong economic activity in the United States also provides support for the dollar, with resilient consumer spending also bolstering the fundamentals.

The ECB policy rate remains unchanged with inflation expectations at or marginally above the central bank’s target, and the euro is under pressure. Eurozone growth has been supported by fiscal support and relatively lower energy price increases and disparities. The outlook has been dampened by political and economic conditions within and outside the Eurozone. The bloc’s markets have improved, yet equity fragmentation continues in some markets.

The GBP remains under pressure, with U.K. inflation expected to increase at an average annualized pace of about 3.2% in 2026. Political pressure in the U.K. includes uncertainty about the leadership in London. The Bank of England’s Bank Rate stands at 3.75% with the central bank signalling additional tightening could be on the horizon depending upon conditions from inflation outlook. U.K. GDP growth expectations have modestly improved.

DXY Bounces $99.16 off White Downward Trendline

The DXY is currently sitting at $99.19 on the 4h timeframe and has rallied higher with a series of green engulfing candles since it last tested the white downward trendline starting from the April highs around $99.00. Price has already taken out the red 50MA at $98.80 to produce another set of higher lows since it last tested the blue support line around $98.00. This recent rally higher is the most recent break higher above the $99.00 pivot and while the RSI climbs above 52 confirming momentum shift without overbought signals it is not yet overbought.

Fib analysis from the latest May swing is projecting that price will next test for resistance at the $99.33 to $99.66 area. Recent volume profile suggests that price will likely find buyers above $98.80 and price would be neutral to bullish above $98.80 as long as it can trade higher along its rising channel.

Trading Plan: Buy the $99.16 level target $99.66 Stop $98.80

GBP/USD Bounces off $1.335 in Rising Channel

The GBP/USD trades at $1.3360 on the 4h timeframe and is currently defending the white rising trendline that has been in existence since the beginning of May since it last tested the $1.334 Fib. A red MA is sitting around the $1.337 area and is serving as resistance at the moment and price has produced a set of higher lows in this channel. Price is currently displaying mixed signals from the red and green bars as the most recent bars have formed buyer absorption as a bullish hammer to signal continuation.

The RSI is maintaining steady momentum around the 52 area. Fib analysis suggests that price could rally higher next to test the $1.339 to $1.344 resistance area. Volume profile highlights the $1.335 level as a major pivot and support point. Price would likely remain bullish above $1.334 as long as price continues to make higher lows in its rising channel.

Trading Plan: Buy the $1.3360 level to target $1.344 with stops at $1.334.

EUR/USD Dips $1.163 to Blue Upward Trendline

The EUR/USD sits at $1.1633 on the 2h timeframe and it has dipped lower along with blue upward trendline starting from the mid-April lows since price last tested the $1.178 red MA. A series of red candles over the last few sessions have been creating new sets of lower highs and the most recent candles to test the $1.174 area are exhibiting bearish wicks while price continues to hold above the $1.162 Fib. Price has thus far only exhibited a higher lows structure inside the short-term trading range while still creating a downtrend structure higher up the chart.

The RSI is dipping lower from neutral conditions into bearish territory below the 48 level. Overhead resistance flipped at $1.174. Volume profile analysis suggests that the $1.171 level is a major pivot of supply and resistance and price would be bearish below $1.174 as long as it trades lower in a channel.

Trading Plan: Sell $1.1633 to target the $1.159 level and place a stop $1.167 above.