US Dollar Forecast: Holds Firm as ECB Eyes Rate Cut to 2.40% – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) edged up to 99.58 on Thursday, finding support from robust U.S. economic data and a firm Federal Reserve stance. March retail sales rose 1.4%, the strongest monthly gain since early 2022, well above the prior 0.2% and beating the 1.3% forecast. This reinforced expectations that the Fed may delay rate cuts, despite headline inflation slowing to 2.4% in March.

Core CPI also eased to 2.8% from 3.1%, but the stronger consumer demand and hawkish commentary from Chair Powell continue to anchor the dollar.

Meanwhile, weekly unemployment claims ticked up to 225K, slightly above forecasts, and the Philly Fed Manufacturing Index disappointed sharply at 2.2 versus the expected 12.5, pointing to pockets of economic softening.

ECB Poised for Rate Cut as Market Awaits Confirmation

Markets are closely watching the European Central Bank’s upcoming rate decision, with consensus expecting a cut in the Main Refinancing Rate from 2.65% to 2.40%. The anticipated move reflects softening inflation and weakening demand across the eurozone. German PPI data, which dropped -0.7% month-on-month, adds to the dovish case.

While the ECB hasn’t yet confirmed the rate change, forward guidance and recent comments from policymakers suggest growing support for easing in the June meeting if data continues to trend lower. Until the official decision is released, EUR/USD remains sensitive to policy divergence with the Fed’s more cautious stance.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) remains under pressure, trading near $99.58 after repeated failures to reclaim the $100.18 resistance level, which also aligns with the 0.236 Fibonacci retracement. A declining 50 EMA at $99.99 continues to reject upside moves, while the 200 EMA up at $101.85 signals longer-term bearish control.

Downside pressure could intensify if DXY breaks below $99.20, exposing support at $98.71 and $98.23. On the upside, bulls need to reclaim $100.78 (0.382 Fib) to shift near-term sentiment.

GBP/USD Technical Analysis

GBP/USD is consolidating near $1.3230, holding just above a key ascending trendline that’s supported the pair since early April. The 50 EMA at $1.3167 remains upward sloping and provides immediate support, while the 200 EMA at $1.3014 underpins the broader bullish structure.

A close above $1.3290 would set sights on resistance at $1.3342, followed by a key ceiling near $1.3396. On the flip side, a breakdown below $1.3205 could trigger a retest of the $1.3146–$1.3083 zone.

Momentum is still favoring the bulls, but with price pausing just beneath resistance, traders may want to watch for a decisive breakout or deeper pullback before making the next move. The uptrend remains intact — for now.

EUR/USD Technical Forecast

EUR/USD is trading around $1.1361, holding just above the 23.6% Fibonacci retracement at $1.1341 after a solid rally from the April lows. The pair is finding near-term support from the 50 EMA at $1.1311, while the 200 EMA below at $1.1086 reinforces the bullish trend.

So far, buyers are defending the short-term uptrend line drawn from the $1.0912 base. If price holds above $1.1341, a retest of the $1.1417–$1.1475 resistance zone remains on the table. Below $1.1340, however, things could shift toward $1.1260 and $1.1193.

Right now, EUR/USD remains in a healthy consolidation phase, but any break beneath the trendline could open the door to a deeper correction. Watch volume around these levels.