USD Falls as Tariff Uncertainty and Fiscal Concerns Pressure Greenback: EUR/USD and GBP/USD Outlook

The U.S. Dollar Index (DXY) continued its downward trajectory, dropping to 98.78 in Monday’s early trading. The greenback is under pressure as fiscal concerns mount and Moody’s recent downgrade of the U.S. credit rating further dents investor confidence. With U.S. markets closed for Memorial Day, trading volumes remain thin, exacerbating volatility.

Fiscal Deficit and Moody’s Downgrade

Concerns over the expanding fiscal deficit have intensified. The Congressional Budget Office estimates that the proposed “One Big Beautiful Bill,” championed by former President Trump, could balloon the deficit by $3.8 billion due to aggressive tax cuts. Senator Ron Johnson labeled the projected $2.2 trillion deficit “completely unacceptable,” signaling political resistance unless spending is curtailed.

Adding to the gloom, Moody’s downgraded the U.S. credit rating from Aaa to Aa1. The agency forecasts that federal debt will soar to 134% of GDP by 2035, up from 98% in 2023, with the deficit climbing to nearly 9% of GDP. Rising debt-servicing costs and entitlement spending are expected to further strain the nation’s fiscal health.

Tariff and Fed Uncertainty

Lingering uncertainty around upcoming tariff decisions and Federal Reserve policy is also weighing on the greenback. While Fed officials have adopted a cautious tone, citing stagflation risks and trade headwinds, traders are closely watching economic data and tariff developments for direction.

U.S. Dollar Index (DXY) – Technical Analysis

The DXY remains under bearish pressure, trading at 98.78. The 4-hour chart shows a strong downtrend, with the index struggling below the 50-period EMA (99.89) and 200-period EMA (100.62), both acting as resistance. A descending trendline confirms the bearish sentiment, characterized by lower highs and lower lows.

Key levels to monitor:

• Immediate Support: 98.51
• Next Downside Targets: 97.93 and 97.37
• Resistance to Watch: 99.17 and 99.98 (if a rebound occurs)

GBP/USD Technical Outlook

GBP/USD has extended its bullish rally, approaching resistance near 1.3650. The pair maintains upward momentum, supported by higher highs and higher lows on the 2-hour chart. Dynamic support from the 50-period EMA (1.3450) and 200-period EMA (1.3348) reinforces the bullish trend.

Fibonacci extension levels highlight:

• Immediate Resistance: 1.3632
• Upside Target: 1.3748

Watch for a breakout above 1.3632 to confirm further upside. Conversely, a pullback to the trendline support at 1.3445 could offer a buy-the-dip opportunity.

EUR/USD Technical Forecast

EUR/USD is showing strong bullish behavior, testing the top of a rising channel on the 4-hour chart. The pair is trading around 1.1410, nearing resistance at 1.1437.

Technical highlights:

• Support Levels: 1.1353, 1.1289 (50 EMA), and 1.1219 (200 EMA)
• Key Resistance: 1.1437 and 1.1526

If EUR/USD breaks above 1.1437, it may rally toward 1.1526. Failure to clear resistance could lead to consolidation within the current ascending channel.

Conclusion

The U.S. dollar remains on the defensive as fiscal concerns and tariff uncertainty dominate headlines. While GBP/USD and EUR/USD show bullish momentum, the greenback’s outlook hinges on upcoming economic data, geopolitical developments, and resolution around debt and trade issues. Forex traders should brace for continued volatility as these factors evolve.

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