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US Dollar Index steadies above 99.00 ahead of Retail Sales, PPI data

  • US Dollar Index moves little ahead of the US Retail Sales and PPI data later on Wednesday.
  • US CPI broadly met expectations, reinforcing views that the Fed will likely keep policy unchanged this month.
  • Market sentiment remains cautious after President Trump urged Iranians to keep protesting, pledging that help is on the way.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is inching lower after registering modest gains in the previous session. The DXY hovers around 99.10 during the Asian hours on Wednesday. Traders brace for the US Retail Sales and Producer Price Index (PPI) data later in the North American session.

The Greenback may further appreciate as the US Consumer Price Index (CPI) broadly met expectations, reinforcing views that the Federal Reserve (Fed) will likely hold policy steady this month, even as underlying price pressures showed signs of easing.

US Consumer Price Index rose by 0.3% month-over-month in December 2025, matching market expectations. The headline inflation remains at 2.7% increase year-over-year (YoY) as expected. Meanwhile, Core CPI, excluding food and energy, rose 0.2% in December, below market expectations, while annual core inflation held at 2.6%, matching a four-year low.

The US CPI data provided a clearer sign of easing inflation after earlier releases were skewed by shutdown effects. However, last Friday’s strong Nonfarm Payrolls report, a dip in the Unemployment Rate, and a solid four-week average ADP Employment Change point to a resilient labor market.

The upside impact of inflation data on the US Dollar could be offset by concerns over Fed independence. US federal prosecutors have threatened to indict Fed Chair Jerome Powell over his congressional comments on a building renovation project, raising questions about the central bank’s autonomy. The Trump administration has been pressuring the Fed to cut interest rates, with Powell describing the threat as a “pretext” to influence policy.

Traders remain cautious amid escalating geopolitical tensions. Reuters, citing the US-based HRANA rights group, reported on Wednesday that the death toll from Iran’s protests has reached 2,571. US President Donald Trump has urged Iranians to continue protesting, pledging that help is on the way.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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