US Dollar Price Forecast: Fed Rate Path in Focus as EUR and GBP Stay Under Pressure

Dollar Index Outlook: Fed Rate Hike Looms as EUR and GBP Face Diverging Policy Paths

The USD faces its first interest-rate decision post-COVID on Wednesday with the market pricing in an expected 25 basis point hike from the Fed. Futures were pricing in a 93% chance of a rate hike heading into the announcement with investors more concerned about the economic outlook in the US than before.

The limited impact of the anticipated rate hike on the USD is dependent on Chair Warsh framework for this policy decision. A one-off hike to regain tri bump inflation could limit any shock to the market and the greenback, while the start of a more aggressive tightening cycle would increase rate hike expectations and USD strength. The Fed’s inflation target is 2.0%, and August inflation of 3.4% came with core inflation rising 0.3% for the month. Thearsi spiked 10-year US yields to the 5% territory before receding on Wednesday.

The USD is further supported by the relative rate picture as the eurozone inflation remains well above the target and the ECB’s deposit rate hike of 25 bps to 2.5% is dominated by the potential for aggressive rate hikes by the Fed. A report from the ECB on Wednesday showed wage growth is expected to remain the same until 2027 with a slight upward trend thereafter.

According to Wednesday’s inflation report for the UK, expect no surprise from the Bank of England when it meets Thursday to consider interest rate decisions. Headline inflation for August reached 3.1%, while core inflation stagnated at 2.6% and services inflation remained at 3.4%. The data suggests little evidence of the second-round inflation effect. Prices for the first hike by the BoE stand at around 20%.

Considering current economic dynamic factors, especially tomorrow’s FOMC chair announcement, we’re neutral to bullish for DXY, neutral to bearish for EUR, and neutral to bearish for GBP.

U.S. Dollar Index Technical Analysis: DXY Holds 99.54 Support as 99.73 Breakout Comes Into Focus

The U.S. Dollar Index is at 99.59 on the 1-hour chart and the focus of the analysis is on the fact that price continues to respect an upward sloping trendline by trading above the 99.54 breakout zone. Following the latest run, buyers have been defending this area and therefore the resistance zone is constructive even with some price consolidation below resistance.

The first zone of resistance that I will be focusing on is the 99.73 level. A break above this zone would target 99.85 and then 99.98. Support would come in at 99.54, with the zone of 99.39 and 99.25 becoming more prominent if the upward sloping trendline loses its definition.

DXY trading above 99.54 and the upward sloping trendline would indicate a bullish bias. The RSI moving to the center indicates a pause in the upward trend, but the bias remains intact. Trading below the support level of 99.39 would indicate a bearish shift, while a break above the resistance level of 99.73 would reignite a bull push toward 99.85 and 99.98.

GBP/USD Technical Analysis: Sterling Tests 1.3465 Support as Descending Trend Keeps Pressure Intact

Sterling is currently trading at 1.3470 against the dollar, and I expect a further drop as price has formed an ascending trendless pattern breaking the moving averages. The price is currently holding the 1.3465 support area, so this third wave is especially important for price action going forward after failed attempts to recover.

As of writing, I have 1.3465 as firm support, and a break under this price would bring 1.3444 and 1.3419 into play. I am expecting the price action to reverse here, and a rally toward 1.3513 is possible if buyers step in.

The RSI is still in the downtrend, and I expect the price to drop to 1.3513 support. A break of 1.3465 would confirm what I’ve stated and would open 1.3444 and 1.3419 to the downside. A new upside extension to 1.3536 would bring about a new outlook, along with a break over the descending trendline.

EUR/USD Technical Analysis: Euro Holds Near 1.1523 Support as 1.1556 Caps the Recovery

EUR/USD traded at 1.1548 on the 4-hour chart after a sharp decline from the 1.1645 level. Price is below both moving averages and a descending trendline and the latest move has price trading below the 1.1554–1.1559 resistance level. This structure remains bearish despite a pause of sellers at support.

The level to watch first is 1.1556. A break above this level opens 1.1573, then 1.1589 and 1.1604. Support is found at 1.1523, but should selling pressure return, 1.1501 and 1.1484 will become more relevant.

RSI is showing an initial recovery from oversold, but still remains in the lower range, which shows the correction is likely still a correction. My view for now is slightly bearish while EUR/USD is trading below 1.1556-1.1573. A break above 1.1589 calls for a revision of this view. A break below 1.1523 argues more selling pressure should be expected to drive the price lower.