US Dollar Price Forecast: Steady Near 98 as Fed Rate Cuts Loom – GBP/USD and EUR/USD

Market Overview

Early on Monday in Europe, the US Dollar Index (DXY), which tracks the US dollar against six major global currencies, was holding steady at 98.00. Given thin trading volumes, plenty of people are off work for the New Year holiday, so there’s less money sloshing around to cause significant price swings.

Fed Rate Cuts Having a Mixed Effect on the Dollar

The Federal Reserve (Fed) chopped the federal funds rate by 25 basis points at its December meeting, knocking the target range down to 3.50%-3.75%. That’s right – this is the 3rd cut the Fed has made in 2025 – a total of 75 bps.

Now that the Fed has delivered these cuts, markets are looking at the possibility of more, at least two more in 2026. The CME FedWatch tool currently suggests there’s an 18.3% chance the Fed will reduce rates at its next policy meeting in January.

After last week’s comments from Donald Trump about wanting the next Fed Chair to ease off on interest rates a bit if the markets do well, some folks are getting a bit worried about the Fed’s independence. This could put extra downward pressure on the dollar.

Geopolitical Jitters Fuel Safe-Haven Demand

All the same, geopolitical risk is pushing investors towards safe havens – and that’s good news for the US dollar. On Sunday, Trump was talking about how he’d made a lot of progress with Ukraine’s Volodymyr Zelenskiy on a possible peace deal – but he also said it might still be a few weeks before the deal’s actually done. At the same time, all these geopolitical uncertainties are giving investors the jitters – and that means they’re reaching for safe havens.

So, even though the Fed is looking to cut interest rates, the DXY is still holding firm – for now, at least. Traders are keeping a close eye on the Pending Home Sales report that’s due out later today, as well as any more comments from Federal Reserve officials.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index (DXY) is hovering around 98.02 after a bit of a bounce last week from that 97.73-97.80 support level. On the 2-hour chart, the price is still holding within a short-term rising channel, suggesting it has some momentum but isn’t quite ready to shake off that downtrend just yet. The 50-day EMA at 98.12 is acting as a ceiling, while the 100-day EMA at 98.55-98.60 is a much stronger resistance level above.

Looking at Fibonacci levels from that recent downward move, we can see the price struggling to get above that 38.2% retracement at 98.12, which is keeping any upside pretty firmly in check. If we can finally break above 98.25, then 98.55 looks like it might be in play – but if we fail to make that break, then 97.75 is looking like it’s next port of call.

GBP/USD Technical Analysis

The GBP/USD pair is hovering around $1.3490 at the moment, trading in a tight range within a clear rising channel on a 2-hour chart. The bigger picture remains bullish, with the price staying above the channel midpoint and key moving averages.

Price is also holding up well above the 50-day EMA at $1.3470, which is currently acting as short-term support, and the 100-day EMA at $1.3340 is the foundation of the medium-term trend.

The immediate support is sitting around $1.3470-$1.3450, then comes the slightly stronger support just below $1.3410. On the other hand, there’s resistance capping things at $1.3535, and the upper channel boundary is not far off at $1.3600.

EUR/USD Technical Forecast

The EUR/USD pair is still trading around $1.1780, though it’s now stuck in a neat little rising channel on the 2-hour chart. Price action remains bullish, with buyers still strongly defending the lower channel boundary at $1.1750, which is short-term horizontal support.

The 50-day EMA comes in around $1.1765 and is acting as a real line of defence, while the 100-day EMA at $1.1705 is also adding to the overall bullish picture.

On the upside, there’s some resistance around $1.1805, and then that upper channel limit comes in at $1.1850. As long as EUR/USD can stay above $1.1750, we’re looking good for an upward trend – with dips naturally attracting buyers.