US Dollar Forecast: Fed, Inflation Data Drive Volatility – GBP/USD and EUR/USD

Market Overview

The U.S. Dollar Index (DXY) is slipping near 103.70, weighed down by weak consumer sentiment, inflation concerns, and speculation over Federal Reserve policy shifts. The University of Michigan’s Consumer Sentiment Index fell sharply to 57.9 in March, marking its lowest level since November 2022 and missing the expected 63.1. Meanwhile, inflation expectations climbed, with the five-year outlook rising to 3.9% from 3.5%, reflecting growing concerns over price stability.

Traders are anticipating the Federal Reserve will hold rates steady this week, but CME FedWatch Tool data suggests a 75% probability of a rate cut by June. This outlook has kept the dollar on the defensive, limiting its ability to gain traction.

On the geopolitical front, rising tensions in the Middle East are adding uncertainty to global markets. The U.S. has escalated its military response following a series of attacks on naval forces, fueling concerns over broader instability.

Looking ahead, U.S. Retail Sales and the Empire State Manufacturing Index will offer further economic clues, but the FOMC decision on Wednesday remains the key event that could drive the dollar’s next major move.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is hovering at 103.693, slightly down but still maintaining a cautious stance. The pivot point at $103.58 is acting as a key level—holding above it keeps the bullish momentum intact, while a break below could trigger further downside pressure. The 50-day EMA at $103.80 is offering near-term resistance, while the 200-day EMA at $104.99 suggests that broader strength remains capped.

A move above immediate resistance at $104.27 could push DXY toward $104.92, but failure to hold $103.58 might lead to declines toward $103.23 and $102.71. For now, DXY is consolidating within an upward channel, but if $103.58 fails, sellers could take control.

GBP/USD Technical Analysis

GBP/USD is treading water at $1.29434, maintaining a neutral stance while hovering above key support at $1.29110. The 50-day EMA at $1.28902 is acting as a cushion, reinforcing the broader bullish structure, while the 200-day EMA at $1.26944 signals a longer-term uptrend.

A break above immediate resistance at $1.29878 could push GBP/USD toward $1.30532, where sellers may re-enter the market. On the downside, if the pair dips below $1.29110, it could trigger a move toward $1.28605 and possibly $1.28131.

For now, GBP/USD remains within an upward channel, keeping the bullish bias intact. However, a break below $1.29110 could shift sentiment and accelerate selling pressure.

EUR/USD Technical Forecast

EUR/USD is holding steady at $1.08845, up 0.02%, as the pair maintains its bullish momentum within an upward channel. The $1.08645 pivot point is acting as a key support level—staying above it keeps buyers in control, while a break below could invite selling pressure toward $1.08061 and $1.07212.

On the upside, the first major resistance stands at $1.09486, with a move beyond that opening the door to $1.10196. The 50-day EMA at $1.08642 is reinforcing the bullish bias, while the 200-day EMA at $1.07059 indicates a broader uptrend.

For now, EUR/USD remains bullish, but traders should watch for a breakout above $1.09486 or a breakdown below $1.08645 for the next directional move.