US Dollar Index (DXY) trims losses ahead of US inflation data

The US Dollar Index (DXY) hits session highs near 101.80 and turns positive on the daily chart.
The index remains at the lower end of the four-week range, following a 0.6% reversal on Monday.
US CPI data might have a muted impact on the US Dollar as it will miss key year-over-year readings.

Guillermo Alcala FXStreet

The US Dollar (USD) is posting minor gains against most peers on Tuesday, with markets calm ahead of the US Consumer Price Index (CPI) release, while lower Oil prices are weighing on safe havens, including the Greenback. The USD Index (DXY), which measures the value of the US Dollar against a basket of six majors, has turned positive in the daily chart, after hitting session highs at 101.77, but it remains on the defensive following a 0.6% reversal on Monday.

It's worth recalling that the US consumer inflation report will show an unusual format this time, as it will not deliver the key year-on-year reading. Last year’s government shutdown discontinued data collection activity in that period and there is no October 2025 reading to be compared with this year’s inflation.

Monthly inflation, on the other hand, is seen moderating in October. Danske Bank’s US economists “expect inflation to have come down from its September pace, with both headline and core at +0.20% on the month," following the fastest monthly headline CPI in six months, at +0.65%," says the bank in a note.

Oil prices' decline has boosted risk appetite, weighing on the US Dollar

Looking from a wider perspective, the US Dollar remains on its back foot, as the sharp decline in Oil prices has encouraged investors to bet on riskier-perceived currencies, namely the risk-sensitive NZD and AUD, but also the Euro and the British Pound.

Analysts at Brown Brothers Harriman observe that "risk appetite is recovering," as Brent crude "slipped towards its 200-day moving average at $93.85 a barrel" after President Donald Trump "downplayed the likelihood of renewed military strikes on Iran."

Equity markets have also recovered partially this week after the AI-driven sell-off witnessed lin the last one. This is contributing to improving investors’ appetite for risk, keeping the pressure on the USD.

Against this background, the DXY keeps trading in the lower range of the last four weeks’ trading band, with key support at the 101.00-101.20 level relatively close, while the 102.35-102.50 area that capped bulls in late October and early November seems out of reach at the moment.

Economic Indicator

Consumer Price Index (MoM)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM figure compares the prices of goods in the reference month to the previous month.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Economic Indicator

Consumer Price Index ex Food & Energy (MoM)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The MoM print compares the prices of goods in the reference month to the previous month.The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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