US Dollar Forecast: Drops on Weak ISM, Tariff Shock Ahead of NFP – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) continued its slide in Friday’s Asian session, trading near 101.76, as markets digested weak macro data and renewed trade tensions. The dollar’s weakness followed President Trump’s unveiling of a “Liberation Day” tariff package—featuring a 10% base import duty and a 34% levy on select Chinese goods—raising concerns over stagflation and further economic disruption.

The tariff shock comes amid signs of a cooling economy. March’s ISM Services PMI dropped sharply to 50.8 (vs. 53.0 expected), with the employment index plunging to 46.2 from 53.9—its first contraction in four months. While initial jobless claims dipped to 219K, continuing claims climbed to 1.79 million, underscoring lingering stress in the labor market.

Adding to the unease, inflation pressures showed modest relief, as the ISM Prices Paid Index eased to 60.9 from 62.6. Still, this wasn’t enough to shift sentiment or revive the greenback. Technically, the DXY has broken below key levels, now trading under its 200-day EMA, signaling potential for further downside toward the 101.36 and 100.86 Fibonacci extensions.

All eyes now turn to Friday’s Non-Farm Payrolls (NFP) report, with markets expecting a gain of 137K jobs and the unemployment rate to remain at 4.1%. Average hourly earnings are projected to rise 0.3% month-over-month. A miss here could reinforce recession fears and weigh further on the dollar, while a strong beat may temper dovish Fed expectations.

With Fed Chair Powell and other FOMC members scheduled to speak later in the day, the policy outlook remains fluid. But unless data surprises materially to the upside, the dollar appears trapped in a bearish cycle fueled by policy risks and deteriorating economic momentum.

US Dollar Index (DXY) – Technical Analysis

After tumbling from above $104, the U.S. Dollar Index (DXY) has found a fragile footing around $101.76, clinging to modest gains after a 2% weekly drop.

The move sliced through key supports at $103.22 and $102.78, with the price now struggling to reclaim even the $102.32 Fibonacci level.

Momentum remains weak, and a brief recovery attempt stalled near the 50 EMA at $103.10. The 200 EMA stands higher at $103.93, reinforcing overhead pressure.

Unless DXY clears $102.78 with conviction, bears are likely to target $101.36 and potentially $100.86. Caution prevails ahead of U.S. jobs data.

GBP/USD Technical Analysis

The British pound is consolidating around $1.3050 after a swift pullback from its recent high near $1.3226. This retracement follows an extended bullish rally that saw GBP/USD break decisively above the 50 EMA at $1.3017 and the 200 EMA at $1.2939. The pair has now retraced toward the 38.2% Fibonacci level at $1.3040, which is acting as immediate support.

If this level holds, bulls could regain momentum with a move back toward $1.3094 and $1.3148, representing the 50% and 61.8% retracement levels, respectively.

However, failure to maintain above $1.3040 could expose downside toward $1.2974 and possibly $1.2901. GBP/USD is in a pullback phase after reaching multi-week highs. As long as $1.3040 holds, the broader bullish structure remains intact.

EUR/USD Technical Forecast

The EUR/USD has surged to its highest level since early January, currently trading around $1.1058 after a sharp breakout above the $1.0959 Fibonacci 38.2% level.

The pair cleared key resistance zones with conviction, flipping the 50 EMA at $1.0922 and the 200 EMA at $1.0832 into strong support.

Price is now consolidating just below the $1.1100 resistance, aligned with the 61.8% Fib retracement. EUR/USD remains bullish above $1.1030.

A decisive break above $1.1100 could trigger a run toward $1.1143 and $1.1202. A drop below $1.1029 would signal loss of momentum.