US Dollar Forecast: Weak GDP, Sticky Inflation Keep Fed Cautious – Bond Yield and GBP/USD Outlook

Market Overview

The US Dollar weakened as Q4 GDP growth slowed to 2.3%, falling short of the 2.7% forecast and down from 3.1% in Q3. The softer growth reflects cooling economic momentum, though Unemployment Claims dropped to 207K, signaling continued labor market strength.

Meanwhile, the Advance GDP Price Index rose to 2.2%, highlighting ongoing inflation pressures, which could keep the Federal Reserve cautious on rate cuts. Bond yields remained steady, reflecting investor uncertainty over economic direction. Pending Home Sales fell sharply by 5.5%, pointing to potential weakness in the housing market.

With Core PCE inflation data ahead, markets will closely watch for signs of easing price pressures. A higher-than-expected reading could reinforce the Fed’s restrictive stance, while weaker inflation could support rate-cut bets. The Chicago PMI will also offer insights into business sentiment, shaping expectations for the US economy’s near-term trajectory.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $108.177, holding near its pivot level of $108.23. A break above this level could strengthen bullish momentum, with resistance ahead at $108.64 and $109.09.

However, failure to clear resistance may trigger a pullback toward $107.55, with stronger support at $107.19. The 50-day EMA at $107.95 offers a near-term floor, while the 200-day EMA at $108.23 signals a key threshold for market sentiment.

As long as DXY stays above $108.23, buyers remain in control, but a slip below this level could invite selling pressure, testing lower support zones.

US 10-year Bond Yields

The U.S. 10-Year Treasury yield is trading at 4.541%, recovering from recent lows near 4.455% while staying below the 50-day EMA (4.544%) and 200-day EMA (4.584%). The modest rebound suggests cautious optimism, but the bearish trendline remains intact.

Rising yields indicate investor concerns over inflation persistence and potential delays in Federal Reserve rate cuts. Higher yields typically boost the U.S. Dollar Index (DXY) by increasing demand for U.S. assets, but persistent resistance near 4.58% may limit further upside.

If yields drop, the DXY may weaken, supporting risk assets like equities and gold while weighing on the dollar’s bullish momentum.

GBP/USD Technical Analysis

GBP/USD is trading at $1.24232, up 0.07%, as it consolidates around a key pivot level. Immediate resistance stands at $1.24795, with a break above this level potentially pushing the pair toward $1.25230. However, upside momentum appears fragile, with the 50-day EMA at $1.24295 acting as near-term resistance.

On the downside, support at $1.23542 remains critical—if breached, it could trigger further declines toward $1.23049. The 200-day EMA at $1.23864 suggests a broader consolidation phase. GBP/USD remains bullish above $1.24232, but if buyers fail to sustain momentum, downside risks could emerge.