**U.S. Dollar Tests Weekly Lows: In-Depth Analysis for EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
Original article by James Hyerczyk, FX Empire
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The U.S. dollar resumed its downward trend this week, testing fresh weekly lows amid shifting market sentiment and changing expectations surrounding the Federal Reserve’s next move. As traders analyze economic data and central bank commentary, major currency pairs have exhibited significant volatility. This comprehensive overview examines the performance and outlook of the EUR/USD, GBP/USD, USD/CAD, and USD/JPY pairs as the trading week unfolds.
## U.S. Dollar Index Performance
The U.S. Dollar Index (DXY), which tracks the greenback’s value against a basket of six major currencies, weakened notably, hitting its lowest levels since April. The decline follows a period of relative stability, suggesting that sentiment has shifted in favor of the euro, pound, and other G10 currencies. Several factors have contributed to the dollar’s recent vulnerability.
### Key Drivers Behind the Dollar’s Decline
– **Softening U.S. Economic Data**
Recent releases, including housing and labor reports, have indicated a moderation in economic growth. Slower job creation and mixed inflation data have prompted traders to reconsider how soon and how aggressively the Federal Reserve might cut rates.
– **Federal Reserve Dilemma**
While inflation remains above the Fed’s 2 percent target, central bank officials have adopted a cautious tone. Markets are currently pricing in a rate cut as early as September.
– **Risk Sentiment and Global Equity Markets**
Increased appetite for risk assets has drawn investors away from the dollar and towards higher-yielding or risk-sensitive currencies.
– **Yield Differentials Narrowing**
The gap between U.S. Treasury yields and other sovereign bonds is narrowing, effectively eroding one of the dollar’s primary sources of support.
## EUR/USD: Bullish Momentum Remains
The euro rose toward a more than one-month high versus the dollar, buoyed by an improved risk environment and speculation that the European Central Bank will continue to normalize monetary policy.
### Factors Influencing EUR/USD
– **ECB Rate Cut Priced In**, Yet Euro Strengthens
Although the European Central Bank is widely expected to lower rates during the summer, the single currency has outperformed on the view that the ECB’s easing cycle may be less aggressive than previously anticipated.
– **Relative Economic Strength**
Recent Eurozone PMIs and business surveys have surprised to the upside, diminishing the immediate urgency for further policy accommodation.
– **Technical Picture**
– The EUR/USD pair has taken out resistance near 1.0800, targeting levels close to 1.0900.
– Momentum indicators, such as the Relative Strength Index (RSI), support further upside acceleration.
– Moving averages are starting to tilt bullish, reinforcing the breakout scenario.
### EUR/USD: Outlook and Scenarios
– **Upside Scenario**
– Sustained closes above 1.0870 may create the conditions for another rally towards 1.0950 and 1.1000.
– A softer greenback, especially following dovish Fed commentary, would underpin this outlook.
– **Downside Risks**
– A quick reversal in sentiment or unexpectedly hawkish ECB statements could see the pair retest support near 1.0790 and 1.0760.
## GBP/USD: Pound Buoyed by Changing BOE Expectations
Sterling has maintained its recent strength against the dollar, with the pound climbing toward multi-week highs. Market sentiment has been shaped by evolving forecasts for Bank of England (BOE) monetary policy.
### Factors Supporting GBP/USD
– **BOE’s Cautious Approach to Rate Cuts**
– UK inflation, while moderating, remains stubbornly high in core sectors.
– Expectations that the BOE will delay its first rate cut to later in the
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