US Dollar Forecast: Risks Mount on Moody’s Deficit Warning – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) is trading near 104.30, pressured by declining Treasury yields and renewed concerns over fiscal and trade policy direction. The 2-year yield has slipped to 3.99%, while the 10-year yield holds at 4.35%, reflecting investor unease ahead of key inflation data.

Fiscal Pressures and Global Trade Risk Undermine Dollar Outlook

Rising fiscal deficits are once again in focus. Moody’s has warned that proposed tariffs and extended tax cuts could widen the US deficit, raising the risk of a future credit rating downgrade.

S&P Global echoed these concerns, suggesting that increased policy volatility may weigh on global growth. Meanwhile, Fitch Ratings noted that Washington’s tariff approach could dampen external demand for US goods, particularly from emerging economies like Brazil, India, and Vietnam.

These developments may erode demand for US assets, reinforcing downside pressure on the dollar, especially if external trade partners reduce exposure to dollar-denominated imports.

Federal Reserve Balancing Inflation Risk and Growth Concerns

Fed officials appear increasingly split on how to navigate economic crosscurrents. Boston Fed President Susan Collins emphasized the tension between maintaining a restrictive stance and recognizing signs of a broader slowdown. Richmond Fed President Thomas Barkin added that unresolved trade policies could complicate the Fed’s decision-making, prompting a more measured pace on policy shifts.

This ambiguity is fueling expectations of delayed rate adjustments and a weaker policy impulse—both of which are limiting support for the dollar in the near term.

PCE Inflation Data May Shape Near-Term USD Trajectory

Markets are now focused on Friday’s release of the PCE Price Index—the Fed’s preferred inflation measure. A weaker-than-expected reading could accelerate bets on mid-year rate cuts, adding to downward pressure on the dollar.

With policy visibility low and fiscal dynamics under scrutiny, the path for the greenback remains data-dependent—and fragile.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $104.297, down slightly on the session but still clinging to its short-term uptrend. Price action remains supported above the pivot point at $104.206, which also aligns closely with the 50 EMA at $104.246. That’s keeping sentiment cautiously bullish.

Immediate resistance sits at $104.673, with a stronger ceiling at $104.887. A break above those levels could signal renewed strength. However, if the index dips below $104.20, downside momentum could build quickly, with $103.835 and $103.532 acting as the next key support zones.

For now, the trend channel remains intact, but the index is approaching a decision point—and traders should watch for any break in structure.

GBP/USD Technical Analysis

GBP/USD is trading at $1.2955, maintaining modest gains as it hovers near the upper end of its recent range. The pair has reclaimed ground above the 50 EMA at 1.2933, which now acts as intraday support, while the 200 EMA at $1.2896 continues to underpin broader momentum.

Price action is pressing into the $1.2973–$1.2980 resistance zone, which has capped several rally attempts this month. A break above this level could expose 1.3014 next.

On the downside, the $1.2937 pivot and $1.2903 remain key levels to watch. The short-term structure is constructive, but bulls will need a clear breakout to confirm trend continuation beyond the descending trendline resistance.

EUR/USD Technical Forecast

EUR/USD is treading cautiously at $1.0787, hovering just below its 50 EMA at $1.0798 and key pivot point at $1.0808. The pair continues to respect a broader downward channel, with immediate support resting at $1.0734. If that level breaks, downside pressure could accelerate toward $1.0677.

Technically, the 200 EMA at $1.0786 is providing minor support, but price action below the pivot keeps bears slightly in control. On the upside, a break above $1.0808 could shift sentiment and open the door to $1.0858 and $1.0913.

For now, sellers have the upper hand, but momentum remains muted—traders are likely waiting for a catalyst before committing to a clear directional move.