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United States Dollar Index (DXY) bears eye August low around 98.50 ahead of US inflation

  • DXY drifts lower for the third straight day as the JPY extends a hawkish BoJ-inspired rally.
  • Rising Fed rate hike bets and geopolitical risks could support the safe-haven Greenback.
  • Traders now await US inflation figures for Fed rate cuts and a fresh directional impetus.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts sellers for the third straight day and drops to a nearly three-week low, around the 98.70-98.65 area, during the early European session on Wednesday. The index now eyes the August swing low as traders keenly await the release of US inflation figures.

The US Producer Price Index (PPI) and the Consumer Price Index (CPI) will be published on Thursday and Friday, respectively. The crucial data will be looked at for more cues about the US Federal Reserve's (Fed) policy path, which, in turn, will determine the next leg of a directional move for the DXY. In the meantime, USD bulls remain on the back foot amid the hawkish Bank of Japan (BoJ)-inspired rally in the Japanese Yen (JPY).

Meanwhile, traders ramped up bets for a September Fed rate hike following the release of the better-than-expected US Nonfarm Payrolls (NFP) report. Furthermore, inflation risks stemming from persistently higher energy prices underpin prospects for Fed tightening. In fact, crude oil prices rose to a three-month high as escalating US-Iran tensions and clashes in the Strait of Hormuz continue to fuel a prolonged disruption to supplies.

US CPI in focus as Fed hike odds hinge on inflation print

Economists at DBS argue that “this week’s CPI data will prove pivotal for the FOMC meeting next week,” with markets still lacking a clear policy signal despite resilient activity. They note that “firm labour market data kept Fed hike bets elevated (60% chance of a hike in September) but was not sufficient to decisively nudge investors firmly in one direction.” Instead, DBS stresses that “the focus now lies squarely on inflation,” pointing out that “the past few inflation prints have been very benign as increases in the transport component proved surprisingly muted.”

In the latest developments surrounding the Middle East crisis, the US attacked Iranian oil tankers in the Gulf of Oman and near Kharg Island. Iran responded by firing over 30 missiles at US forces stationed at the Al Azraq base in Jordan. This, in turn, keeps the geopolitical risk premium in play and could offer some support to the safe-haven USD, warranting some caution for bearish traders before positioning for any further losses.

DXY daily chart

Chart Analysis Dollar Index Spot

Technical Analysis

The DXY holds a bearish near-term bias following the recent failure near the 100-day Exponential Moving Average (EMA) at 99.67 and the 61.8% Fibonacci retracement at 99.21. The latter is the first notable cap on the upside, with the EMA and the 50% retracement at 99.70 reinforcing a dense resistance band just overhead. On the downside, initial support emerges at the 78.6% retracement at 98.51, ahead of the recent cycle low region around 97.62, where a break would likely extend the prevailing bearish phase.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the New Zealand Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.41%-0.32%-4.28%-0.90%-1.21%0.54%-0.42%
EUR0.41%0.08%-3.91%-0.54%-0.82%0.99%0.00%
GBP0.32%-0.08%-3.99%-0.59%-0.88%0.89%-0.08%
JPY4.28%3.91%3.99%3.53%3.27%5.32%4.03%
CAD0.90%0.54%0.59%-3.53%-0.28%1.73%0.49%
AUD1.21%0.82%0.88%-3.27%0.28%1.71%0.79%
NZD-0.54%-0.99%-0.89%-5.32%-1.73%-1.71%-0.98%
CHF0.42%-0.01%0.08%-4.03%-0.49%-0.79%0.98%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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