Dollar Pulls Back as Markets Push Back Rate Cut Bets

EUR/USD: 1.1400 rejection strengthens near-term support

The dollar erased some of its losses on Friday, but it still ended the week lower, with the US Dollar Index (DXY) coming off an 11-month high. The DXY ended the week at 99.50 after reaching as high as 100.50, while EUR/USD finished it at 1.1570, coming off lows at 1.1410.

The main disruptor remains the war in the Middle East, which doesn’t show any signs of cooling off; even more, some voices now say that the conflict would last longer than initially anticipated. With the Strait of Hormuz effectively shut down, there’s an increasing risk of rising inflation due to higher energy prices.

This inflationary risk has pushed back prospects of a rate cut, with some analysts anticipating higher rates in 2026, not lower. The first rate cut of 2026 was expected in June, but now there’s a 94% chance the Fed will not trim it. The highest rate cut probability of the year is 14%, and that’s in December, according to the CME FedWatch tool. It’s fair to say that unless something drastic happens, 2026 will not see a rate cut.

Economic Calendar Outlook

Tuesday will be sprinkled with PMI releases, starting at 8:30 am GMT with the German Manufacturing and Services PMIs, followed at 9:30 am GMT by the same indicators for the UK economy. The U.S. Manufacturing and Services PMIs will be released later in the day, at 1:45 pm GMT.

It will be a slow week for the US Dollar in terms of economic releases, with the only other notable events being the Unemployment Claims on Thursday and the University of Michigan Consumer Sentiment survey scheduled for Friday at 2:00 pm GMT.

Also on Friday, the UK Retail Sales will come out, with a major drop expected: from the previous 1.8% to -0.3%. This could strongly affect the Pound, so it’s worth keeping an eye on. The release is scheduled early at 7:00 am GMT.

Technical Outlook – EUR/USD

The pair bounced off the support at 1.1400 and finished last week right on the resistance at 1.1600. This textbook rejection at 1.1400 increases the importance of this level but also the significance of a break.

If the dollar regains its shine and drags the pair below 1.1400, this could open the door for a touch of 1.1200 support. But for the time being, the pair seems to be headed higher (short-term). The RSI has just visited oversold territory, and this is especially important because the RSI was last oversold in January of 2025 (on a Daily chart).

This situation could spark a stronger rally, but we cannot rule out any direction because any significant developments in the Middle East conflict could change the technical landscape.