US Dollar Weakens Before CPI and Fed Decision as GBP/USD and EUR/USD Gain Momentum

The U.S. dollar faces a critical test this week as traders await fresh inflation data and signals from the Federal Reserve. The Dollar Index (DXY) has slipped toward 102.34, under pressure from tariff pauses and shifting rate expectations. Meanwhile, GBP/USD and EUR/USD are showing notable strength, with both pairs challenging key technical levels and eyeing further upside.

US Dollar Under Pressure Ahead of CPI Release

The dollar’s recent weakness reflects a combination of softer inflation expectations, geopolitical developments, and cautious Federal Reserve messaging. Today’s U.S. Consumer Price Index (CPI) data, scheduled for release at 12:30 p.m. GMT, is expected to play a pivotal role in shaping near-term direction for the greenback.

Forecasts anticipate core CPI to rise by 0.3% month-over-month, slightly above the previous 0.2% increase. Meanwhile, headline CPI is expected at 0.1%, down from the prior 0.2%. On an annual basis, inflation is projected to ease to 2.5%, retreating from February’s 2.8%.

Weekly jobless claims are also projected to rise modestly to 223,000 from the prior 219,000, reinforcing signs of a cooling labor market. Should inflation undershoot expectations, speculation of Federal Reserve rate cuts could intensify, adding to downside pressure on the dollar.

Tariff Pause Weighs on Dollar Sentiment

Adding to the dollar’s cautious tone, President Trump recently announced a 90-day freeze on new tariffs, reducing duties to 10% for key U.S. trade partners. While intended as a diplomatic gesture to revive stalled negotiations, this move has inadvertently weakened the dollar by softening the trade-war-driven demand for the greenback as a safe-haven asset.

Mark Hackett, Chief of Investment Research at Nationwide, described the tariff pause as “a stabilizing gesture,” but cautioned that the underlying trade conflicts remain unresolved. The market response has been subdued, with participants awaiting clearer progress before adjusting risk positions significantly.

Federal Reserve Balances Growth Risks with Inflation

The Federal Reserve continues to navigate a complex environment of lingering inflation pressures and signs of slowing growth. According to the latest FOMC minutes, policymakers recognize the challenge of balancing price stability with economic resilience.

The CME FedWatch Tool now assigns just a 40% probability of a rate cut at the next Fed meeting, down sharply from more than 60% just weeks earlier. While Fed officials have maintained a data-dependent stance, a soft CPI reading today could easily tilt sentiment back toward the dovish side.

A hotter-than-expected inflation print, however, would signal that the inflation fight remains unfinished, potentially lifting U.S. yields and supporting the dollar in the short term. With so much riding on today’s numbers, the greenback’s next move hangs in the balance.

Dollar Index (DXY) Technical Outlook

The U.S. Dollar Index remains under technical pressure, slipping to 102.34 after failing to reclaim the key pivot at 102.70. Resistance remains firm at 103.33, with a stronger barrier at 104.04. Immediate support lies at 101.83, while a deeper floor is seen at 101.33.

The 50-day EMA at 103.04 continues to act as dynamic resistance, while the 200-day EMA near 104.25 underscores the broader bearish tilt. Unless the index closes decisively above 103.33, risks remain tilted to the downside, with sellers eyeing a potential move toward 101.83. The CPI release is likely to determine which direction the breakout unfolds.

GBP/USD Rebounds Toward Critical Levels

The British pound is gaining traction, with GBP/USD rebounding from the 1.2713 support zone. The pair is now challenging both the 50 EMA at 1.2845 and the 200 EMA at 1.2893—crucial levels that could define the short-term outlook.

A sustained close above 1.2893 could clear the path toward 1.2935, with further potential to test the psychological 1.3000 mark. On the downside, support remains at 1.2856, followed by a stronger base at 1.2713.

Momentum indicators are firming, and the bullish structure remains intact as long as the pair stays above its rising trendline. Should GBP/USD breach the EMA confluence, a rally toward the 1.3016 resistance becomes increasingly likely.

EUR/USD Eyes Breakout as Momentum Builds

The euro is also displaying strength, with EUR/USD reclaiming the 1.0994 pivot zone and advancing toward near-term resistance at 1.1076. The pair is trading within a tightening symmetrical triangle pattern, with bulls attempting to seize control following a rebound from support at 1.0945.

Immediate resistance is seen at 1.1076, with a breakout opening potential for a run toward 1.1144 and possibly 1.1189. On the downside, support levels to watch are 1.0945 and 1.0890. The 50 EMA at 1.0974 is currently acting as dynamic support, while the 200 EMA at 1.0887 reinforces the broader bullish bias.

Momentum indicators, including RSI, are trending higher, reflecting growing buying interest. A breakout above the triangle’s upper boundary could set the stage for a sustained move higher.

Outlook: Dollar’s Fate Hinges on Inflation Data

Today’s CPI report stands as the pivotal event for currency markets. A softer print could accelerate U.S. dollar declines, fueling gains in GBP/USD and EUR/USD, while a hotter inflation surprise may revive bullish dollar momentum.

With the Fed watching closely and rate expectations hanging in the balance, traders should prepare for heightened volatility. Technical setups across major pairs are aligning with fundamental catalysts, setting the stage for significant moves in the sessions ahead.

The next 24 hours could define not just the near-term path for the dollar, but also shape the broader narrative for global currencies in the weeks to come.