US Dollar Forecast: Slides as Tariff Shock Hits Sentiment – GBP/USD and EUR/USD

Market Overview

The US Dollar Index (DXY) fell to around $98.30, its weakest level since March 2022, as uncertainty surrounding U.S. trade policy intensified. The decline reflects growing market anxiety following President Trump’s proposal of broad “reciprocal tariffs” on dozens of trading partners.

Although exemptions were offered to select countries, tensions escalated with China, prompting Beijing to caution its trade allies against aligning with U.S. demands.

Escalating U.S.-China Tariff Spat Fuels Pressure on Greenback

In recent days, U.S. tariffs on Chinese imports surged from 54% to 125%, while China retaliated by increasing duties on all U.S. goods to 84%.

The rapid escalation has stoked fears of a drawn-out economic standoff, weighing on investor sentiment and dampening demand for the dollar as a reserve currency.

Fed Signals Caution as Trade Risks Complicate Policy Outlook

Despite the greenback’s slide, downside pressure may be partially limited by recent comments from Federal Reserve officials. Chair Jerome Powell warned that rising tariffs could “intensify inflation while slowing economic growth,” making future policy moves less straightforward.

“We are in a position to wait for further clarity,” Powell said during last week’s remarks.

Daly: Inflation Risks May Limit Scope for Rate Cuts

San Francisco Fed President Mary Daly echoed a cautious tone, stating that while “a couple of cuts may still be appropriate,” inflation risks tied to geopolitical and trade developments could reduce the need for aggressive easing.

Her remarks add another layer of uncertainty for currency markets already navigating volatile global conditions.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is hanging just above the $98 mark after a sharp breakdown from a tight consolidation range. On the 2-hour chart, the dollar sliced through key support at $98.38 (pivot), exposing it to further downside. Immediate resistance now rests at $99.02, followed by a stronger ceiling near $99.70.

On the flip side, if $98 fails to hold, we’re likely looking at the next support zones around $97.78 and $97.27.

GBP/USD Technical Analysis

Sterling is pressing higher, with GBP/USD climbing to $1.3404 after slicing through $1.3366 resistance. The pair’s uptrend remains clean and well-supported by the 50 EMA at $1.3252, while the 200 EMA sits well below at $1.3075.

The structure is undeniably bullish, with momentum accelerating off the trendline break near $1.3302. Above current levels, bulls are eyeing $1.3448 as the next test, followed by a stretch toward $1.3498.

If price stumbles, immediate support is now at $1.3366, with $1.3302 acting as a firmer floor. All told, unless we see a sharp volume drop or reversal candle, this cable breakout still looks like it has room to run.

EUR/USD Technical Forecast

EUR/USD is breaking out fast, now hovering around $1.1539 after a clean breakout above $1.1497. Buyers stepped in hard above trendline and 50 EMA support, currently sitting near $1.1377.

The price action is strong, with bullish momentum accelerating as the pair targets immediate resistance at $1.1563. Above that, the next key hurdle is $1.1603.

On the downside, $1.1497 is now support, followed by a deeper backstop at $1.1437. Technically, the pair is in a steep uptrend, riding the ascending trendline and well above the 200 EMA ($1.1156). The move is fueled by broad dollar weakness and steady Eurozone sentiment. Unless we see a sharp rejection at $1.1563, this trend still has legs.