US Dollar Forecast: Fed’s Hawkish Tone Limits Downside – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) is trading near 104.30 as markets await clarity on former President Donald Trump’s upcoming tariff policy announcement set for April 2. While Trump has hinted that some countries may receive exemptions, the lack of detail is keeping investors cautious.

Mixed Economic Data Offers Partial Support

Recent US data has been uneven. The S&P Global Composite PMI for March rose to 53.5—up from 51.6 in February—marking the strongest reading since December 2024. The Services PMI jumped to 54.3 from 51.0, beating expectations, while Manufacturing PMI dropped to 49.8 from 52.7, missing the forecast of 51.8. This divergence signals resilience in services, but ongoing weakness in the industrial sector.

The dollar is finding support from the strength in services but remains capped by broader uncertainty around economic momentum.

Tariff Risk and Fed Caution Shape Outlook

Trump’s potential tariff revisions are a key risk factor. Reports suggest possible exemptions for countries like Canada and a tiered tariff structure, though nothing has been confirmed. This ambiguity is keeping markets risk-averse.

At the same time, the Federal Reserve continues to strike a cautious tone. Governor Adriana Kugler noted inflation progress has slowed, especially due to rising goods prices. Atlanta Fed President Raphael Bostic echoed those concerns, indicating reduced expectations for rate cuts in 2025 as trade-related risks grow.

Together, trade uncertainty and the Fed’s more hawkish posture are limiting downside in the dollar, even as markets lack a strong directional catalyst.

Key Data Ahead: PCE and Trade Developments

All eyes now turn to the upcoming PCE Price Index—the Fed’s preferred inflation gauge—due Friday. A stronger-than-expected print could reinforce the case for holding rates higher for longer.

Meanwhile, any clarity on Trump’s tariff plans will be closely watched. Depending on their scope and scale, the policy shift could either support or undermine the dollar, depending on how markets weigh the economic consequences.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $104.296, slightly below its pivot point at $104.325, suggesting some hesitation after a modest pullback. Price remains above the 50 EMA at $104.012, providing short-term support, but it’s still well below the 200 EMA at $105.199, which continues to cap upside momentum.

If the index can reclaim ground above $104.325, bulls may target resistance at $104.903, followed by $105.429.

On the other hand, a break below $104.00 could open the door to $103.763, with deeper support at $103.211. For now, the dollar looks caught in a holding pattern, with markets waiting on fresh macro data to decide the next move.

GBP/USD Technical Analysis

GBP/USD is trading at $1.29423, edging slightly higher and holding just above its pivot point at $1.29269. Price is also aligned with the 50 EMA at $1.29418, which now acts as an intraday support line.

As long as the pair stays above $1.29269, the near-term structure remains constructive, with room to test $1.29739, followed by $1.30141 if momentum builds.

On the downside, a clean break below the pivot would expose support at $1.28884 (200 EMA), and then $1.28595, potentially shifting bias back to the downside. The current setup favors buyers, but with resistance looming nearby, sterling needs a decisive push above $1.297 to sustain bullish momentum.

EUR/USD Technical Forecast

EUR/USD is trading at $1.07856, sitting just below both its 50 EMA at $1.08233 and pivot point at $1.08079—a level that now acts as near-term resistance. Price action remains capped within a descending channel, reinforcing the broader bearish bias.

Unless we see a clean break above $1.08079, sellers are likely to stay in control. Immediate support rests at $1.07643, with further downside risk toward $1.07169 if bearish momentum accelerates. The 200 EMA at $1.07867 is offering temporary footing, but the pair’s inability to hold above the pivot keeps upside limited.

For now, the short-term outlook leans defensive, and a move below $1.076 could open the door for a deeper pullback.