U.S. Dollar Tests Lows as Tariff Uncertainty Pressures Greenback: Analysis For EUR/USD, GBP/USD

Market Overview

The US Dollar Index (DXY) continued its slide in early trading, holding near 98.78 as fiscal concerns and a credit rating downgrade weighed on sentiment. US markets are closed today for the Memorial Day holiday, keeping volumes thin.

Fiscal Deficit and Moody’s Downgrade Pressure the Greenback

The dollar faces headwinds amid mounting US deficit fears. The proposed “One Big Beautiful Bill,” backed by former President Trump, could increase the deficit by $3.8 billion, mainly from tax breaks, per the Congressional Budget Office.

US Senator Ron Johnson warned the $2.2 trillion deficit is “completely unacceptable” and signaled resistance to the bill without spending cuts.

Moody’s downgraded the US credit rating from Aaa to Aa1, citing rising debt costs and expanding entitlements. The agency expects federal debt to hit 134% of GDP by 2035, up from 98% in 2023, with the deficit widening to nearly 9% of GDP.

Tariff and Fed Uncertainty Keep Dollar Weak

Fed officials remain cautious, citing trade uncertainties and the risk of stagflation. Upcoming economic data and tariff updates will be key for the Dollar’s next move.

US Dollar Index (DXY) – Technical Analysis

The U.S. Dollar Index (DXY) is showing persistent weakness, trading at 98.78 with a consistent downtrend visible across the 4-hour chart. The price has broken below multiple support levels, with the 50-period EMA at 99.89 and the 200-period EMA at 100.62 exerting significant overhead pressure.

A descending trendline highlights the bearish momentum, reinforced by lower highs and lower lows. Key levels to watch are immediate support near 98.51, and if broken, further downside could target 97.93 or 97.37. Conversely, a rebound above 99.17 could challenge resistance around 99.98.

GBP/USD Technical Analysis

GBP/USD has been soaring, climbing towards resistance near the 1.3650 level on the 2-hour chart. This rally is supported by a strong series of higher highs and higher lows, hinting at bullish momentum. The pair is comfortably trading above the 50-period EMA (1.3450) and 200-period EMA (1.3348), both of which provide dynamic support.

.The Fibonacci extension levels suggest key targets, with 1.3632 and 1.3748 standing out as potential upside objectives. However, recent candlesticks are forming in a narrow range, hinting at possible exhaustion or consolidation.

Traders should watch for a clear breakout above 1.3632 for a continuation move, while a pullback to retest the trendline support near 1.3445 may offer a buying opportunity.

EUR/USD Technical Forecast

The EUR/USD pair is surging higher, testing the upper boundary of a rising channel on the 4-hour chart. Currently trading at 1.1410, the price is pushing against resistance at 1.1437, with a potential breakout looming.

The pair is well-supported by the 50-period EMA at 1.1289 and the 200-period EMA at 1.1219. The structure highlights a series of higher lows and higher highs, indicating strong bullish momentum.

Key levels to watch include immediate support at 1.1353 and resistance at 1.1526 if the breakout materializes. For traders, a clean break above 1.1437 could open the path to 1.1526, while failure to break may see consolidation within the channel.