DXY Slips Below 100 as Political Gridlock and Risk Aversion Weigh: Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY

US Dollar Index Extends Decline on Political Uncertainty and Global Repositioning

The U.S. Dollar Index (DXY) traded lower for a third consecutive session on Wednesday, falling beneath the 100.00 level to 99.48 as traders responded to fiscal risks tied to President Trump’s tax proposal and renewed scrutiny of U.S. assets. The dollar weakened across major pairs, with the euro, pound, yen, and Canadian dollar all posting gains driven by both domestic tailwinds and a broader selloff in the greenback.

EUR/USD: Euro Lifts on Fiscal Concerns and Technical Momentum

EUR/USD climbed to 1.1346, rising 0.5% on the day, as the euro benefitted from both dollar weakness and bullish sentiment following the failure of U.S. President Trump to unify Republican backing for his expansive tax bill. The proposed legislation, projected to increase national debt by up to $5 trillion, has intensified concerns over long-term fiscal credibility.

Technically, the euro broke decisively above prior resistance around 1.1260, with the 50-period SMA at 1.1210 now well below price. The clean breach confirms a reversal from mid-May lows, while higher euro area bond yields have added support. Investors also remain cautious over U.S. policymakers’ tone at the G7, where suggestions of a weaker dollar policy could further support EUR upside.

GBP/USD: Pound Strengthens on Inflation Shock and USD Retraction

Sterling rallied to 1.3446, its highest since February 2022, after UK CPI surprised to the upside for April. The data dampened expectations for near-term Bank of England rate cuts and lifted the pound by as much as 0.58% intraday.

Parallel to the domestic impulse, broad dollar softness added fuel. Investors rotated away from U.S. fixed income ahead of a key 20-year Treasury auction, amid diminished confidence in American fiscal policy. On the charts, GBP/USD cleared the 1.3420 zone with conviction, now trading comfortably above its 50-period SMA at 1.3309.

USD/CAD: Loonie Firms as Oil Strengthens and USD Falls

USD/CAD dropped sharply to 1.3818, retreating through critical support near 1.3930. A broad-based dollar decline coupled with resilient crude oil prices supported the Canadian dollar. The looming risk of fiscal expansion without sufficient offsetting revenue in the U.S. has discouraged further USD exposure.

Technically, the pair’s rejection from the 1.3960–1.3980 zone has been confirmed by a break beneath the 50-period SMA, with sellers extending control into the 1.3800 region. Continued CAD demand reflects market appetite for commodity-linked currencies over dollar-based assets.

USD/JPY: Yen Rallies as Yield Gap Narrows and Geopolitical Risk Rises

USD/JPY fell to 143.63, down 0.6%, as rising Japanese government bond yields narrowed the U.S.-Japan rate differential. Investors moved into the yen and other safe-havens following reports of Israeli preparations for a potential strike on Iranian nuclear facilities, as well as fresh demand for JGBs amid a volatile domestic auction.

The dollar’s retreat also followed cautious language from Fed officials and expectations that U.S. officials may tolerate a softer dollar in ongoing G7 discussions. Technically, the pair now trades below the key 145.80 resistance band and its 50-period SMA, with sellers building momentum in line with rising volatility expectations.

More Information in our Economic Calendar.