US Dollar Price Forecast: Dollar Retreats as ECB and BoE Hold Policy Steady

Published: July 31, 2026

Key Points

• The Federal Reserve maintained interest rates, with three policymakers dissenting for a rate hike.
• The U.S. dollar weakened post-Fed meeting as traders reassessed inflation outlook and policy moves.
• EUR/USD confirmed a breakout above $1.1474, indicating a bullish outlook as the dollar retreated.
• GBP/USD remains above $1.3403 as traders evaluate the Bank of England's cautious stance on inflation.
• Market focus shifts to inflation data and policy divergence between the Fed, ECB, and Bank of England.

Market Analysis

The U.S. dollar has seen a decline following the Federal Reserve's decision to keep interest rates unchanged. This decision was not unanimous, as three members voted for a 25-basis-point increase. The Fed's cautious approach has led to a reassessment of inflation expectations and future policy directions among traders.

In contrast, the euro has reacted positively to the dollar's weakness, although underlying financial conditions in the Eurozone remain challenging. The European Central Bank (ECB) also opted to keep rates steady after a previous increase, maintaining the deposit facility at 2.25%. The Eurozone's economic growth has stagnated, making it more vulnerable to energy price fluctuations due to geopolitical tensions in the Middle East.

Similarly, the Bank of England (BoE) held its Bank Rate at 3.75%, with a split vote reflecting concerns over inflation driven by rising energy costs. The BoE anticipates a near-term increase in inflation, followed by a gradual return to target levels. Policymakers have indicated readiness to act if energy-related pressures begin to affect wages and prices significantly.

Technical Analysis

Dollar Index (DXY)

The Dollar Index has formed a bearish Shark harmonic pattern, breaking below a long-term ascending trendline and key moving averages. The outlook remains bearish, with immediate support at 99.86 and further support at 99.40. Resistance levels are identified at 100.40, 100.99, and 101.47.

GBP/USD

GBP/USD shows a positive trend after breaking above the 1.3400 resistance level, currently trading around 1.3450. The pair is above both the 50-EMA and 100-EMA, indicating bullish sentiment. Key resistance levels are at 1.3474, 1.3542, and 1.3589, while support is at 1.3403.

EUR/USD

EUR/USD has experienced a bullish breakout above the long-term declining trendline and former resistance at 1.1474. The pair is trading above the 50-EMA and 100-EMA, with immediate resistance at 1.1529 and further levels at 1.1575 and 1.1620. The breakout has established support at 1.1418.

Conclusion

The overall sentiment in the forex market is influenced by the interplay of U.S. inflation data, ongoing geopolitical tensions, and the responses of European central banks to rising price pressures. The outlook for the dollar remains bearish unless it can reclaim key resistance levels.