USD Weakens on Fed Rate Path Uncertainty; Major Pairs Eye Breakouts

The US Dollar Index (DXY) has retreated 0.2% to 105.80 as markets reassess the Federal Reserve's monetary policy trajectory amid mixed economic signals. Recent data showing persistent inflation alongside softening labor market conditions has created uncertainty about the pace of future rate adjustments. The EUR/USD has capitalized on dollar weakness, testing resistance at 1.0650, while GBP/USD hovers near 1.2700. USD/JPY remains compressed around 152.50 as Bank of Japan officials maintain their dovish stance despite yen weakness. Technical indicators suggest the dollar's near-term direction hinges on breaking key support at 105.50 on the DXY. Traders are closely monitoring upcoming US CPI data and Fed officials' speeches this week for clearer policy guidance. A sustained break below current levels could trigger broader dollar selling, potentially pushing EUR/USD toward 1.0700 and GBP/USD above 1.2750.