US Dollar Price Forecast: Loses Momentum Ahead Of 2026 Fed Path – GBP/USD And EUR/USD

Key Points:

• US Dollar Index hovers near 98.25 as thin New Year liquidity keeps FX markets muted and directional conviction low.
• DXY is down nearly 10% year-on-year, marking its weakest annual performance in eight years amid policy uncertainty.
• DXY is down nearly 10% year-on-year, marking its weakest annual performance in eight years amid policy uncertainty.

Market Overview

On the first trading day of the year, the US Dollar Index (DXY) was closed, but it had previously traded at 98.25, not far off its peak of 98.44. It's shaping up to be a quiet start to the FX market, and so far, there's not much to get excited about for the Greenback.

DXY Faces Pressure From Political and Economic Concerns

The DXY, which compares the Greenback to six major currencies, is looking pretty underwhelming. It's about 2% below November's peak of 100.40.

In a nutshell, it's on track for a nearly 10% year-on-year decline, which would be its worst performance in eight years. No wonder investor sentiment is a bit downbeat given the erratic US trade policies and all the signs of an economic slowdown.

To top it off, there's the added pressure on the Federal Reserve to cut interest rates, which is eroding confidence in the bank's independence. You can see why the Dollar's status as the world's reserve currency is being questioned.

Federal Reserve Easing Limits Dollar Recovery

While most major central banks have finished raising their interest rates, the Federal Reserve in the US is still in the middle of cutting rates. As a result, the Dollar is struggling to get some traction because unlike many other countries, the US isn't tightening its policy anytime soon.

In addition, the latest US weekly Jobless Claims report came in lower than expected at 199K, down from the forecast of 219K and lower than last week's 215K.

As might be expected, this lower reading may give the US Dollar a bit of a boost. Although all things considered, there's still a lot of downward pressure on the Dollar.

Looking Ahead to 2026

This year is shaping up to be different for the US Dollar, because the Fed is still easing and there's still a lot of uncertainty. As a result, traders will be keeping a close eye on economic data and Federal Reserve statements to gauge how the Dollar might move in the short term.

US Dollar Index (DXY) – Technical Analysis

Dollar Index Price Chart – Source: Tradingview

The U.S. Dollar Index closed around $98.28 on December 31. Markets are closed on January 1, so we might need to wait a bit to see how things unfold. The price is still within a rising channel, but is vulnerable at the moment, as it has dipped below mid-range support near $98.25. The recent candles show smaller bodies and a bit of hesitation in price after the rebound from $97.75.

The 50-day Exponential Moving Average (50-EMA) is starting to creep higher around $98.10, but the 200-day EMA near $98.60 is still acting as a bit of a ceiling on the upside. Looking at Fibonacci retracement levels, $98.36 and $98.74 are acting as key resistance zones. The Relative Strength Index (RSI) is near 58, which suggests that there's a bit of modest momentum on the upside.

If the price can reclaim $98.36, the momentum could carry on towards $98.75, but a slip below $98.00 would weaken the momentum in the short term.

GBP/USD Technical Analysis

GBP/USD Price Chart – Source: Tradingview

GBP/USD closed at around $1.3455 on December 31, and the price has drifted back towards the 50-day EMA at $1.3460, but the 200-day EMA near $1.3410 remains strong trend support.

The recent candles are showing some rejection at the upper channel near $1.3530, suggesting we might be heading for short-term consolidation rather than a trend break. The RSI has eased back towards the low-40s, which is still not oversold, but it's a warning sign.

As we head back into the markets, a sustained hold above $1.3410 will keep the broader uptrend intact and make a break back towards $1.3500-$1.3535 a possibility. Of course, if the price breaks cleanly below $1.3410, then we'd need to look to $1.3345 as the next downside level.

EUR/USD Technical Forecast

EUR/USD Price Chart – Source: Tradingview

EUR/USD closed at around $1.1738 on December 31 – and as you might expect, markets were a bit quiet as liquidity thins out at the start of the year. We are still holding just above the 50-day EMA near $1.1730, but the 200-day EMA around $1.1705 is still looking like a strong support zone.

RSI has started to slide towards 40, which suggests thats a fairly short-term bearish signal but it would take more to confirm a breakdown is under way.

For a rebound to gain some real traction we'd need to see a sustained bounce above $1.1765 , which might then set the stage for a push back up towards $1.1805. On the flipside, if we do manage to break clear of support at $1.1705 then $1.1665 would be a more likely next stop.

Source: FX Empire