US Dollar Forecast: Inflation and Trade Jitters Stall Momentum – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) hovered near 104.311 on Tuesday, showing resilience despite mixed signals from key economic data and ongoing uncertainty surrounding trade policy.

The greenback found moderate support as stronger-than-expected services sector performance offset concerns about manufacturing weakness.

Services Sector Strength Offsets Manufacturing Contraction

The S&P Global US Composite PMI rose to 53.5 in March, recovering from February’s 10-month low of 51.6 and marking the fastest pace of expansion since December 2024.

The Services PMI led the gains, jumping to 54.3 from 51.0—well above expectations.

However, the Manufacturing PMI slipped to 49.8, down from 52.7 and below the forecast of 51.8, indicating a contraction and highlighting uneven momentum across sectors.

Dollar Faces Policy Uncertainty Amid Inflation and Trade Concerns

The dollar faces competing pressures. On one hand, Atlanta Fed President Raphael Bostic noted persistent inflation concerns, signaling a slower pace of rate cuts through 2025.

On the other, potential disruptions from former President Trump’s proposed trade policies have raised investor concerns about economic headwinds.

Fed Chair Jerome Powell’s recent remarks, which pointed to a strong labor market and inflation gradually approaching the 2% target, helped limit downside risks for the dollar.

Traders Eye Inflation Data and Fed Guidance

Looking ahead, market participants are focused on upcoming US economic releases and Federal Reserve commentary for cues on monetary policy.

The Personal Consumption Expenditures (PCE) Price Index, due Friday, will be closely watched as a key inflation gauge.

Additionally, developments in US-China trade negotiations could influence dollar sentiment in the coming sessions.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is holding steady around $104.311, trading just above its pivot point at $104.261. Price action remains constructive, with support from the 23.6% Fibonacci retracement level reinforcing a mildly bullish tone.

The index is also above its 50-day EMA at $103.998, though still under the 200-day EMA at $104.397, which could act as near-term resistance.

A sustained move above $104.903 would strengthen the case for a rally toward $105.429. On the downside, any drop below $104.261 could pull the index back toward support at $103.763 and $103.211.

GBP/USD Technical Analysis

GBP/USD is trading around $1.29223, holding just under its pivot point at $1.29298. The 50-day EMA at $1.29359 is capping upside attempts, adding to the pressure on the pair.

The broader setup remains neutral-to-bearish in the short term, especially as price stays below this dynamic resistance. If buyers manage to reclaim $1.29298 with conviction, the path opens toward $1.29744, followed by $1.30141.

But if the pair fails to break above the EMA zone, downside risks return, with immediate support at $1.28950 and deeper pressure likely down to $1.28602.

EUR/USD Technical Forecast

EUR/USD is hovering near $1.08003 in early trading, struggling to gain traction as it sits just below its pivot point at $1.08079. The pair remains trapped in a downward channel, reflecting a cautious tone in the market.

Price is sandwiched between the 200-day EMA at $1.07854 and the 50-day EMA at $1.08380, suggesting limited momentum in either direction. A clean break above $1.08079 would be needed to shift the near-term bias, potentially opening the door toward resistance at $1.08595.

Until then, bears are likely to stay in control, with immediate support at $1.07643 and further downside risk toward $1.07169. The broader picture favors consolidation unless a clear catalyst breaks the current range.