US Dollar Forecast: CPI Data in Focus as Fed Policy Looms, GBP/USD and EUR/USD Outlook

By:

Arslan Ali

Published: Mar 12, 2025, 08:00 GMT+00:00

Key Points:

Traders await US CPI data, with inflation expected at 2.9% y/y. A softer print could fuel Fed rate cut bets and pressure the US Dollar.
The US Dollar struggles near 103.40 as markets brace for CPI data, Federal Budget Balance, and a crucial 10-Year Bond Auction.
Traders eye the 10-Year Bond Auction for clues on market sentiment. Strong demand may signal recession fears, impacting the dollar.

In this article:

GBP/USD

+0.08%

EUR/USD

-0.18%

Market Overview

The US Dollar Index (DXY) is struggling to hold steady around 103.40, weighed down by escalating trade disputes and growing expectations for a Federal Reserve rate cut in May.

While the greenback has seen brief gains, persistent concerns over slowing economic growth and rising recession risks continue to limit upside momentum.

Trade Conflicts Add to Market Uncertainty

Trade tensions have intensified after President Trump upheld a 25% tariff on imported steel and aluminum, affecting key partners like Canada and Mexico. Meanwhile, US-China trade negotiations remain in limbo, with China demanding stricter fentanyl regulations before considering any tariff reductions.

With no high-level meetings currently planned, uncertainty is keeping investors cautious. Further adding to concerns, the NFIB Business Optimism Index fell from 102.8 to 100.7, signaling declining confidence among U.S. businesses.

Despite Fed Chair Jerome Powell’s reassurances that policy adjustments aren’t urgent, markets are increasingly pricing in a rate cut by May, as reflected in the CME FedWatch Tool.

Upcoming Economic Events to Watch

At 1:30 PM ET, the U.S. Consumer Price Index (CPI) report will be closely watched, with inflation expected at 0.3% (m/m) and 2.9% (y/y)—both slightly below prior readings. If inflation surprises to the downside, expectations for a Fed rate cut could intensify, weakening the U.S. dollar further.

At 6:01 PM ET, the 10-Year Bond Auction will provide insight into investor sentiment on Fed policy. Strong demand could indicate growing recession fears, while weak participation may suggest lingering inflation concerns.

Later, at 7:00 PM ET, the Federal Budget Balance is projected to show a sharp deficit of -$302.5 billion, widening significantly from -$128.6 billion. The steep shortfall could raise fiscal stability concerns, further weighing on market sentiment.

US Dollar Index (DXY) – Technical Analysis

Dollar Index Price Chart – Source: Tradingview

The Dollar Index (DXY) is trading at $103.692, struggling to maintain momentum. The pivot point at $104.031 is a key level—staying below it keeps the outlook bearish, while a breakout above could shift momentum toward $104.860 and $105.797.

The 50-day EMA at $103.963 is acting as short-term resistance, reinforcing selling pressure. Immediate support sits at $103.203, with further downside risks toward $102.534. Meanwhile, the 200-day EMA at $105.542 remains a major resistance zone.

For now, DXY remains bearish below $104.031. A move above this level could trigger a recovery, but failure to do so may lead to further declines toward $103.203.

GBP/USD Technical Analysis

GBP/USD Price Chart – Source: Tradingview

The GBP/USD pair is trading at $1.29156, up 0.02%, holding above the key pivot point at $1.28943. The 50-day EMA at $1.28939 reinforces this level, supporting a bullish bias.

Immediate resistance stands at $1.29634, with a stronger hurdle at $1.30055. A breakout above these levels could push GBP/USD toward higher highs. On the downside, support at $1.28628 remains critical, with $1.28035 acting as the next safety net.

For now, GBP/USD remains bullish above $1.28943, but a break below this level could trigger selling pressure.

EUR/USD Technical Forecast

EUR/USD Price Chart – Source: Tradingview

The EUR/USD pair is trading at $1.0888, holding steady while traders assess key levels. The pivot point at $1.0932 is crucial—staying below it keeps the outlook bearish, while a break above could fuel a rally toward $1.1008 and $1.1087.

On the downside, immediate support sits at $1.0834, aligning with the 50-day EMA at $1.0833. A break below this level could trigger a sharper decline toward $1.0764. The 200-day EMA at $1.0633 provides a longer-term safety net.

For now, EUR/USD remains in a bearish zone below $1.0932. A lower-channel breakout could accelerate selling pressure, but reclaiming $1.0932 would shift sentiment toward the bulls.

About the Author

Arslan Aliauthor

Arslan is a finance MBA and also holds an MPhil degree in behavioral finance. An expert in financial analysis and investor psychology, Arslan uses his academic background to bring valuable insights about market sentiment and whether instruments are likely to be overbought or oversold.