US Dollar Price Forecast: DXY Edges Toward 96 Amid Market Skepticism on Federal Reserve Policies; GBP/USD and EUR/USD in Spotlight
By Arslan Ali | Published: January 29, 2026, 08:53 GMT
The US Dollar Index (DXY) continues to face downward pressure, slipping toward the 96 level amid ongoing concerns surrounding the Federal Reserve’s independence and policy credibility. Despite recent hawkish remarks from Fed Chair Jerome Powell, market participants remain cautious, influencing the US dollar’s performance against major currency pairs such as GBP/USD and EUR/USD.
Market Overview: US Dollar Under Pressure Near Four-Year Lows
The broad US dollar has struggled to gain traction, trading near a four-year low close to 96.00. The DXY, which measures the Greenback’s strength versus a basket of global currencies, currently hovers around 96.08. This sluggish movement is largely attributable to lingering economic uncertainties and doubts about the Federal Reserve’s autonomy, contributing to sustained selling pressure on the currency.
Federal Reserve Developments Weigh on Dollar Momentum
The Federal Reserve held policy rates steady as anticipated during its latest meeting. However, dissent within the Fed was evident with Governors Stephen Miran and Christopher Waller advocating a 25-basis-point rate cut. In the post-meeting press conference, Chair Jerome Powell acknowledged that inflation remains above the 2% target, signaling a cautious approach to policy.
Despite these hawkish signals, the US dollar failed to gain meaningful support. Market participants are now pricing in steady interest rates through the end of the first quarter of 2026, with the possibility of rate cuts emerging later in the year. These expectations have been complicated by external factors including an ongoing criminal investigation involving Powell and efforts to remove Fed Governor Lisa Cook. Such controversies have raised questions regarding the Fed’s independence, further dampening the dollar’s outlook.
Upcoming US Jobless Claims Report to Influence Dollar Direction
Investors are closely watching the upcoming US Weekly Initial Jobless Claims data, forecasted at 206,000, up from the prior 200,000. The report will provide critical insights into the health of the US labor market. A larger-than-expected increase in jobless claims could exacerbate dollar weakness by indicating a slowing economy. Conversely, a surprising decline might offer temporary support for the USD.
Technical Analysis: DXY Shows Bearish Breakdown Below 97
On the technical front, the US Dollar Index has broken down from a descending triangle pattern on the daily chart, slipping below the key support range of 97.50 to 97.00, which now acts as resistance. The presence of long bearish candlestick bodies with minimal lower wicks signals strong selling momentum.
Additionally, the index trades comfortably below its 50-day moving average, suggesting downward risks predominate. Fibonacci retracement levels suggest the next supports near 95.60 and 94.80. The Relative Strength Index (RSI) is below 40, reflecting weak momentum and scant buying interest. Any rebound toward the 97.00 to 97.50 zone is likely a corrective move amid an overall bearish trend.
Trade strategy: Traders might consider shorting the dollar on rallies near 97.00, targeting a decline to 95.60, with a stop loss placed above 97.80. ### GBP/USD Outlook: Sterling Maintains Upside Momentum Near 1.3840
The British pound has shown steadiness, trading in the vicinity of 1.3835 to 1.3840 on the 4-hour chart after breaking decisively above 1.3600. Price action remains comfortably above the 1.618 Fibonacci extension at 1.3710, supporting the continuation of the bullish trend.
Recent candle patterns feature modest-sized bodies and limited pullbacks, indicating controlled profit-booking rather than active selling. The mid-January trendline remains intact, with resistance clustered between 1.3940 and 1.4030, aligned with further Fibonacci extensions.
Support lies at 1.3710 and 1.3630—levels that correspond to prior consolidation zones. The RSI indicator hovering above 65 signals robust buying momentum with relatively low downside risk.
Trade strategy: Buying on dips near 1.3720 appears favorable, targeting upside toward 1.3950, with a stop loss below 1.3630 to manage risk.
EUR/USD Technical Snapshot: Uptrend Holds Near 1.1970 Amid Consolidation
EUR/USD is consolidating near 1.1975 following recent gains, holding above a rising trendline anchored near 1.1680. This technical setup preserves a positive short-term outlook. Recent candles exhibit balanced wicks and small body sizes, implying a pause rather than a reversal in the trend.
Immediate support zones span 1.1960 to 1.1935, where the trendline intersects previous breakout levels. Should the pair slip further, the 50-period moving average near 1.1895 serves as an additional cushion. RSI readings between 55 and 60 indicate waning momentum but without confirming a trend reversal. A break above 1.2000 could open targets near 1.2050 and 1.2210. Trade strategy: Consider purchasing on pullbacks to approximately 1.1960, aiming for a move to 1.2050 while setting a stop loss just below 1.1890. —
Conclusion
The US dollar remains subdued amid concerns over Federal Reserve policy credibility and governance challenges, keeping the USD under pressure with the DXY edging near 96. Market attention now shifts to key data releases such as the US jobless claims that could sway near-term currency dynamics. Meanwhile, major pairs GBP/USD and EUR/USD are exhibiting technical setups consistent with modest bullish trends, offering trading opportunities on pullbacks.
About the Author
Arslan Ali holds an MBA in finance and an MPhil in behavioral finance. Combining expertise in financial analysis and investor psychology, Arslan provides informed perspectives on market sentiment and asset valuations.
For more market forecasts, economic calendars, and trading insights, visit FXEmpire’s dedicated sections on currencies, commodities, and indices.
This article is for informational purposes only and does not constitute financial advice.