Original article credit: James Hyerczyk at FX Empire.
URL: https://www.fxempire.com/forecasts/article/us-dollar-forecast-falls-as-fed-signals-july-cut-tariff-risks-persist-gbp-usd-and-eur-usd-1534781
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# US Dollar Forecast: Weakens as Fed Policy Shifts and Trade Tensions Linger
The US dollar came under pressure this week as shifting monetary policy expectations from the Federal Reserve and renewed concerns over global trade tensions weighed on investor sentiment. The greenback’s broad retreat followed signals from Fed Chair Jerome Powell that a potential interest rate cut could come as soon as July, creating headwinds for the currency across several major pairs.
At the same time, market players remained wary of ongoing trade issues—particularly rising tariff threats that continue to pose a risk to global growth. Against this backdrop, the euro and British pound strengthened, taking advantage of dollar softness and supporting a potential change in directional momentum, at least in the short term.
## Federal Reserve Signals a More Dovish Stand
During their latest policy meeting and subsequent statements, the Federal Reserve made it clear that their bias has shifted toward accommodation. While the Fed kept its benchmark interest rate unchanged for now, officials hinted strongly toward a potential rate cut at their next meeting in July.
Key highlights from the Fed’s policy statement and Powell’s comments include:
– A marked change in tone, moving from a “patient” approach to acknowledging “uncertainties” related to the economic outlook.
– Downgraded inflation projections, with core PCE inflation now expected to hover beneath the Fed’s 2 percent target for some time.
– Interest rate projections (dot plot) suggesting as many as two rate cuts for 2019, depending on forthcoming data.
With the central bank shifting toward a more dovish policy stance, expectations of easing monetary conditions have risen across financial markets. Lower interest rates typically weaken the dollar due to reduced yield attraction for foreign investors, a dynamic already priced into forex markets.
This shifting policy outlook translated into immediate market activity, as the US Dollar Index (DXY) fell sharply following the Fed’s announcement. Traders began to shift their positioning in anticipation of a lower interest rate environment, while prices in the bond market also adjusted—sending yields on US Treasury notes lower.
## Euro Gains as Dollar Retreats
Following the Fed’s dovish tone, the euro posted modest gains against the USD, as the US currency lost ground across major FX trading pairs. The EUR/USD pair experienced a bullish breakout through nearby resistance, testing key technical zones that could support a further advance.
From a market perspective, the European Central Bank (ECB) remains relatively dovish as well, acknowledging the region’s fragile growth and subdued inflation prospects. However, with the Fed now seen as potentially easing more aggressively, downside risks for EUR/USD have temporarily diminished.
Technical outlook for EUR/USD includes:
– A breakout above the 100-day moving average around 1.1280, suggesting an intermediate-term trend reversal.
– Next notable resistance near 1.1350, followed by the psychologically important 1.1400 level.
– Short-term support sits near 1.1250, with additional support near 1.1200 if selling pressure resumes.
In the broader context, euro gains may remain capped unless macroeconomic fundamentals improve across the Eurozone. Weak German manufacturing data and persistent trade uncertainty have kept growth on soft footing. That said, the Fed-induced dollar weakness is currently the more dominant force in driving EUR/USD higher.
## GBP/USD Catches a Bid Despite Political Uncertainty
The British pound also staged a relief rally against the US dollar, taking advantage of the post-Fed decline in dollar yields. GBP/USD rose off multi-month lows, climbing toward the upper end of its recent trading range.
Despite the move higher, the British currency still faces its own hurdles. The ongoing Conservative Party leadership contest in the UK and questions about future
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