US Dollar Price Forecast: Falling Treasury Yields Sink DXY as EUR/USD Breaks Higher

Published: August 20, 2026

Key Points

• Expanded U.S. Treasury buybacks have pushed longer-term yields lower, removing an important source of support for the dollar.
• Fed minutes maintained concerns about inflation, leaving monetary policy uncertainty elevated despite the latest dollar weakness.
• Expectations for another ECB rate increase continue supporting the euro as markets assess persistent inflation pressures.

Market Overview

The U.S. dollar faced increased pressure as bond market stress eased following the Treasury Department's unexpected decision to double longer-dated government bond buybacks. The 30-year yield fell from a 19-year high of 5.337% to 5.211%. Treasury Secretary Scott Bessent announced that buybacks of 10- to 30-year securities would increase from $2 billion to at least $4 billion per operation. This contributed to a softer dollar, compounded by Fed minutes that expressed ongoing concerns about inflation and expectations for further tightening, despite indications that recent price pressures may be easing.

Euro and Sterling Dynamics

The weaker U.S. dollar has driven the euro higher, with expectations for the European Central Bank (ECB) to raise its deposit rate to 2.50% following July's inflation rate of 2.9%. However, ECB policymaker Olli Rehn noted that wage growth remains low, suggesting a cautious approach to policy adjustments. In contrast, the UK faces mixed economic signals, with inflation rising to a four-month high of 2.9% in July, driven primarily by energy prices. Private sector wage growth has slowed, and job openings have decreased significantly.

Technical Analysis

U.S. Dollar Index (DXY)

The DXY is currently trading at $98.89, having broken below a bullish rising trendline and the support level at $99.38. The index is also below the 50-day and 100-day EMAs, indicating a bearish outlook. The RSI is around 32, suggesting the DXY is nearing oversold conditions. Key resistance levels are at $99.38, $100.06, and $100.66, while support is found at $98.41 and $97.84.

GBP/USD Analysis

The GBP/USD is trading at $1.3601, having broken out of a consolidation zone. The price is above both the 50 EMA and 100 EMA, indicating a bullish trend. Resistance is expected at $1.3630, while support levels are at $1.3590 and $1.3577. A break above $1.3630 could lead to further gains.

EUR/USD Analysis

The EUR/USD is trading at $1.1672, having broken out from the $1.1570 zone. The price is above the 50-EMA and 100-EMA, indicating a bullish structure. The pair is testing resistance at $1.1684, with immediate support at $1.1657. A break above $1.1684 could lead to further bullish momentum.

Conclusion

Overall, the U.S. dollar is expected to experience broad-based weakness due to falling longer-term yields and the ECB's anticipated rate hike, alongside the Bank of England's challenges with rising inflation and weakening employment. The technical outlook for the DXY remains bearish, while GBP/USD and EUR/USD show potential for further gains if key resistance levels are breached.