The US dollar index (DXY) remained under pressure during the European session, trading near 103.68, near multi-month lows. The currency faced headwinds as investors weighed the impact of trade policy shifts and the growing likelihood of a rate cut by the Fed this year.
Concerns about a slowdown in the labor market and upcoming tariffs added to uncertainty, keeping the dollar in a fragile position.
Economic data point to weak dollar outlook
Recent US labor market data has boosted expectations of multiple interest rate cuts by the Federal Reserve in 2024. The latest nonfarm payrolls report showed jobs growing at 151,000 in February, below expectations of 160,000.
In addition, job figures in January were revised to 125,000 from 143,000, raising concerns about weakening employment trends.
Market rates now reflect expectations of a 75 basis point rate cut this year, with the first step expected in June, according to LSEG data.
The British Pound (GBP) is likely to trade in a range between 1.2845 and 1.2930. In the longer term, bullish momentum is slowing; UOB Group forex analysts Quick Sir Liang and Peter Shea point out that a breach of 1.2830 means the 1.2975 target is out of reach this time.
24-hour look: “Last Friday, the pound rose to a high of 1.2945. On Monday, when the pound was at 1.2930, we highlighted the following: “Although there is no clear increase in bullish momentum, there is a chance for the pound to test key resistance at 1.2975 before the risk of a pullback increases. A sustained break above 1.2975 seems unlikely. On the downside, if the pound breaks the 1.2870 level (secondary support at 1.2900), this suggests that it has moved into the trading phase of the range.
GBP/USD: Momentum and Trend Struggle
The GBP/USD pair has been hovering around 1.2923, struggling to gain more momentum after its bullish march paused in March near the upper border of its ascending channel.
The pair rose to 1.2945 last week, hitting its highest level since November 2024. However, strong overbought signals suggest that the recent rally may lose strength, as the RSI and random oscillator appear to have peaked above 30 and 20 respectively.
A decisive breakout above the resistance level of 1.2923-1.2950 – corresponding to the 61.8% Fibonacci retracement of the previous downtrend – could reignite buying interest. If the November peak of 1.3040 is surpassed, momentum could accumulate towards the 2023 high of 1.3140, with the next resistance likely to emerge near 1.3260, a key barrier from August 2024 and March 2022.
On the flip side, if sellers regain control, the pair could fall towards the 200-day SMA, which hovers above the 50% Fibonacci level at 1.2765, and the 20-day SMA at 1.2712. Further losses could bring the lower band of the ascending channel to play around the 38.2% Fibonacci level at 1.2600, ahead of the 50-day SMA at 1.2513.
However, sterling rose less than expected, rising from 1.2946 to 1.2862. Today, we expect the pound to trade in a range between 1.2845 and 1.2930.”
A deteriorating labor market could prompt the Fed to ease policy earlier than initially expected, increasing the downside risk for the dollar.
In short, the GBP/USD pair stands at a critical juncture. A push beyond 1.2950 and exiting the ascending channel could inject new momentum. Otherwise, the next step may cause the pair to slip backwards.
GBP/USD forecast
The GBP/USD is trading at $1.29010, up 0.01%, maintaining a bullish position above the $1.28687 pivot. The pair remains within an ascending channel, indicating continued interest in buying. The 50-day EMA at $1.28686 acts as immediate support, reinforcing the uptrend. A breakout above $1.29446 could open the door for further gains towards $1.30055, as sellers may intervene.
On the downside, support at $1.28035 is the key level to watch. A breakout below this could shift the momentum downwards, showing $1.27415 as the next target. The 200-day exponential moving average at $1.27181 indicates a solid long-term base. For now, the GBP/USD pair remains in a buying position above $1.28687, with bullish momentum continuing.
A deteriorating labor market could prompt the Fed to ease policy earlier than initially expected, increasing the downside risk for the dollar.
Trade policies increase dollar vulnerability
In addition to the outlook for monetary policy, trade developments weigh on sentiment. Commerce Secretary Howard Lutnik confirmed that 25% tariffs on steel and aluminum imports will take effect on Wednesday, a move that has upset financial markets.
At the same time, President Trump referred to the U.S. economy as in a “transition period,” raising investors’ concerns about the broader economic outlook. These uncertainties contributed to continued selling pressure on the dollar.
Traders are keeping an eye on Tuesday’s NFIB Small Business Index and the JOLTS Job Vacancies Report for more insights on economic conditions. JOLTS’ figure, at 7.60 million, is expected to be a key indicator of labor market strength
A weaker reading could boost expectations of a rate cut, while a bullish surprise could provide some short-term stability for the US dollar index.
