US Dollar Forecast: Trade Policy Uncertainty Pressures DXY – GBP/USD and EUR/USD Outlook

Market Overview

The U.S. Dollar Index (DXY) remained under pressure during the European session, trading near 103.68, close to multi-month lows. The currency faced headwinds as investors weighed the impact of trade policy shifts and the growing likelihood of Federal Reserve rate cuts this year.

Concerns over a slowing labor market and upcoming tariffs have added to the uncertainty, keeping the dollar in a fragile position.

Economic Data Signals Weaker Dollar Outlook

Recent U.S. labor market data has reinforced expectations of multiple Fed rate cuts in 2024. The latest Nonfarm Payrolls (NFP) report showed job growth at 151,000 in February, falling short of the 160,000 forecast.

Additionally, January’s job numbers were revised downward to 125,000 from 143,000, raising concerns about weakening employment trends.

Market pricing now reflects expectations of 75 basis points (bps) of rate cuts this year, with the first move anticipated in June, according to LSEG data.

A deteriorating labor market could push the Fed to ease policy sooner than initially expected, increasing downside risks for the dollar.

Trade Policies Add to Dollar’s Weakness

In addition to monetary policy expectations, trade developments are influencing sentiment. Commerce Secretary Howard Lutnick confirmed that 25% tariffs on steel and aluminum imports will take effect on Wednesday, a move that has unsettled financial markets.

Meanwhile, President Trump referred to the U.S. economy as being in a “transition period,” raising investor concerns about the broader economic outlook. These uncertainties have contributed to sustained selling pressure on the dollar.

Key Events Ahead

Traders are monitoring Tuesday’s NFIB Small Business Index and JOLTS Job Openings Report for further insights into economic conditions. The JOLTS figure, projected at 7.60 million, will be a key indicator of labor market strength.

A weaker reading could strengthen rate cut expectations, while an upside surprise might provide some short-term stability for DXY.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at 103.63, hovering just below the 104.03 pivot point, reinforcing a bearish bias. The index remains under pressure, stuck in a downward channel, signaling continued selling momentum. The 50-day EMA at 104.26 is acting as near-term resistance, while the 200-day EMA at 105.81 suggests a longer-term downtrend.

If DXY fails to reclaim 104.03, further downside could target 102.80, with deeper support at 102.10. However, a break above 104.03 could shift sentiment, allowing a push toward 104.86, with stronger resistance at 105.80. For now, DXY remains in a bearish structure below 104.03, with downside pressure dominating.

GBP/USD Technical Analysis

GBP/USD is trading at $1.29010, up 0.01%, maintaining a bullish stance above the $1.28687 pivot point. The pair remains within an upward channel, signaling continued buying interest. The 50-day EMA at $1.28686 is acting as immediate support, reinforcing the bullish trend. A break above $1.29446 could open the door for further gains toward $1.30055, where sellers may step in.

On the downside, support at $1.28035 is the key level to watch. A break below this could shift momentum lower, exposing $1.27415 as the next target. The 200-day EMA at $1.27181 suggests a solid long-term base. For now, GBP/USD remains in buy mode above $1.28687, with bullish momentum intact.

EUR/USD Technical Forecast

EUR/USD is trading at $1.08743, inching up 0.01%, as the pair remains in an upward channel, keeping the short-term outlook bullish. The pivot point at $1.08354 is the key level to watch—staying above it suggests buyers remain in control, while a break below could signal a shift toward selling pressure.

Immediate resistance is at $1.09418, with a stronger hurdle at $1.10205. A move above these levels could accelerate gains. On the downside, $1.07638 is the first key support, with a deeper pullback potentially testing $1.06759.

The 50-day EMA at $1.07858 is reinforcing support, while the 200-day EMA at $1.05971 remains a key long-term floor. If momentum holds, EUR/USD could push higher, but any break below $1.08354 could quickly shift sentiment bearish.