US Dollar Forecast: Will DXY Break 110? Tariffs and PMI Data Set the Tone – GBP/USD and EUR/USD Outlook

Market Overview

The US Dollar (USD) showed resilience following key economic data released on January 31. The Core PCE Price Index rose 0.2%, meeting forecasts, while personal spending surged 0.7%, exceeding expectations of 0.5%, signaling strong consumer demand. Employment Cost Index held steady at 0.9%, reflecting consistent wage growth. However, the Chicago PMI disappointed at 39.5, below the forecast of 40.3, highlighting ongoing manufacturing weakness.

Adding to market tensions, President Trump’s announcement of new tariffs on imports from Canada, Mexico, and China has fueled concerns about potential inflationary pressures, further strengthening the USD.

Looking ahead, February 3 will be pivotal with the Final Manufacturing PMI (50.1), ISM Manufacturing PMI (49.3), and ISM Manufacturing Prices (52.6) expected to guide USD movements.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $109.623, up 1.04%, reflecting strong bullish momentum as it holds above the key pivot point at $109.392. This surge is partly driven by safe-haven demand following recent market turbulence. Immediate resistance is at $109.884, with the next barrier at $110.186.

A break above these levels could signal continued strength. However, with the DXY now in overbought territory, caution is warranted—momentum may slow, increasing the risk of a pullback toward support at $109.088 and $108.832.

The 50-EMA at $108.312 and 200-EMA at $108.293 suggest underlying strength, but watch for potential reversals if the index fails to maintain above its pivot.

Sterling Awaits PMI Data After Weak Housing Report

The British Pound (GBP) showed limited movement after the Nationwide HPI rose just 0.1%, missing the 0.3% forecast and reflecting a slowdown from December’s 0.7%.

Looking ahead, traders will focus on the Final Manufacturing PMI, set to be released today, with expectations steady at 48.2. This figure will be key in shaping the near-term outlook for GBP, as weak data could signal ongoing economic challenges in the UK manufacturing sector.

GBP/USD Technical Analysis

The GBP/USD is trading at $1.22864, up 0.84%, showing some resilience despite broader market jitters after new U.S. tariffs on Canada, Mexico, and China rattled investor sentiment. The pair is hovering just below its pivot point at $1.23004—a key level to watch.

A sustained move above this could trigger bullish momentum toward immediate resistance at $1.23549, with the next target at $1.24113. However, the 50-EMA at $1.23994 and the 200-EMA at $1.23834 may cap further gains.

On the downside, if GBP/USD fails to hold above $1.23004, a pullback toward $1.22300 and potentially $1.21602 is likely. The market’s next move hinges on how it reacts around the pivot, with bullish bias above and bearish pressure below.

Euro Awaits Key PMI and CPI Data for Market Direction

The Euro faces a pivotal day on February 3, with key economic data set to influence its trajectory. Spanish Manufacturing PMI is forecast at 53.5, indicating potential growth, while Italy’s PMI is expected to rise to 46.8.

France and Germany’s final PMIs are projected to remain steady at 45.3 and 44.1, reflecting continued manufacturing challenges.

Inflation data, including the Core CPI Flash Estimate (2.6% forecast) and CPI Flash Estimate (2.4%), will be critical in shaping market sentiment.

EUR/USD Technical Forecast

The EUR/USD is trading at $1.02304, down 1.21%, slipping just below its pivot point at $1.02316—a level that could shape near-term direction. Immediate support is seen at $1.01763, and a break below this could accelerate declines toward $1.01409.

On the upside, if EUR/USD regains momentum above the pivot, it may target resistance at $1.02828 and $1.03429. However, with the 50-EMA at $1.03795 and the 200-EMA at $1.03859 looming overhead, the broader trend remains bearish unless there’s a decisive breakout above these levels.