**Article based on “U.S. Dollar Pulls Back as Traders Bet on Dovish Fed: Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY” by Vladimir Zernov, originally published on FXEmpire**
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# U.S. Dollar Retreats as Fed Dovish Bets Gain Momentum
By Vladimir Zernov
The U.S. dollar index has taken a noticeable step back at the start of the week as traders increasingly wager on a more dovish course from the Federal Reserve. Persistent signals of cooling U.S. inflation and uncertain growth prospects have led to renewed market speculation over the timing and number of interest rate cuts by the Fed this year. This article dives into the major drivers behind the dollar’s weakness, examines the latest fundamental developments, and analyzes technical levels for key currency pairs: EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
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## Fed Rate Cut Speculation Returns to the Fore
Recent U.S. economic data has reaffirmed the market’s belief that the Fed may pivot towards policy easing sooner rather than later. Both inflation and labor market figures have begun to show some softening:
– **PCE Price Index**: The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, moderated in recent readings. While not dramatically undershooting expectations, the data was enough to reinforce the idea that inflationary pressures are gradually abating.
– **Nonfarm Payrolls and Unemployment**: Though job numbers remain relatively strong, there are growing signs of moderation. Wage growth, a crucial inflation driver, has also shown signs of plateauing.
The culmination of this data has led futures markets to price in greater odds of a Fed rate cut within the coming months. Investors are betting that policymakers will lean dovish if inflation continues to cool and growth exhibits further signs of fatigue.
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## Bond Yields and Risk Sentiment
U.S. Treasury yields have mirrored the expectations of Fed cuts, pulling back from recent highs. Lower yields weigh on the dollar in the FX market, making alternative currencies more attractive on a relative basis. The greenback’s pullback is also fueled by:
– **Improving Risk Sentiment**: As expectations stabilize around the end of the Fed’s hiking cycle, equities and riskier assets have found support. This “risk-on” mood tends to be dollar-negative, as investors seek higher returns outside the safe haven of the greenback.
– **Global Central Bank Divergence**: Although the Fed is widely expected to eventually lower rates, other major central banks such as the European Central Bank (ECB) and the Bank of England (BoE) are signaling cautiousness, hoping to maintain some differentiation in their paths. This tug-of-war has contributed to volatility and created opportunities for currency traders.
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## Technical and Fundamental Analysis: Major Pairs
Let’s examine how these dynamics are influencing the principal currency pairs.
### 1. **EUR/USD: Bulls Eye Key Resistance**
The euro has capitalized on dollar weakness, reclaiming ground against the U.S. currency.
– **Fundamental Drivers**: The eurozone economy has shown resilience, and the ECB’s latest statements have signaled a wait-and-see mode, preferring to keep rates high for now. While growth remains anemic, inflation is stabilizing.
– **Technical View**: EUR/USD has returned above the 1.0850 area, a critical technical level. If sustained, the move opens up space towards the 1.0950–1.1000 zone, which could prove a substantial resistance region.
– **Key Support/Resistance Levels**:
– Support: 1.0800, then 1.0760.
– Resistance: 1.0900, then 1.1000.
– **What to Watch**: The ability to close above the 50-day moving average and maintain bullish momentum through key resistance.
### 2.
Read more on GBP/USD trading.