• The index loses further momentum and breaches 105.00.
  • US Headline CPI came below estimates in July.
  • The probability of a 75 bps hike dwindled after the data.

The greenback collapsed to multi-week lows in the sub-105.00 region when measured by the US Dollar Index (DXY) on Wednesday.

US Dollar Index plummeted after CPI prints

The index depreciated rapidly after US inflation figures showed the headline CPI rose less than initially expected in July. Indeed, consumer prices rose 8.5% and 5.9% when it comes to the core reading, both prints slowing the upside traction from the previous month.

The perception that inflation pressures might be at or near their peak seems to have prompted investors to re-price the possibility of a large rate hike (75 bps) at the next FOMC event in September. This view was also reflected in the marked correction lower in US yields across the curve, which in turn added to the buck’s daily decline.

Supporting the above, CME Group’s FedWatch Tool now shows the probability of a 75 bps rate hike in September is at nearly 39% from around 70% prior to the CPI release.

Extra data in the US calendar saw MBA Mortgage Applications expand 0.2% in the week to August 5 and Wholesale Inventories expand 1.8% in June vs 1.9% in the previous month. 

What to look for around USD

The index suddenly came under extra pressure and trades in the 105.00 zone, as market participants continue to assess the recent publication of US inflation figures.

The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve.

Looking at the macro scenario, the dollar appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Wholesale Inventories (Wednesday) Initial Claims, Producer Prices (Thursday) – Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 1.13% at 105.09 and a breach of 104.94 (monthly low August 10) would expose 103.67 (weekly low June 27) and finally 103.52 (100-day SMA). On the upside, a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

AUD/USD regained 0.6500 and aims to extend its advance

AUD/USD regained 0.6500 and aims to extend its advance

The AUD/USD pair trades around 0.6520, as the better tone of equities and profit-taking due to extreme overbought conditions took its toll on the greenback. Positive momentum is set to continue, at least in the near term.

AUD/USD News

EUR/USD flirts with 0.9750 amid a dollar sell-off

EUR/USD flirts with 0.9750 amid a dollar sell-off

The EUR/USD pair soared in the latest American session after reaching a fresh 22-year low of 0.9535. The greenback entered a selling spiral after Wall Street changed course while government bond yields sunk.

EUR/USD News

Gold: Sharp bounce falling short of indicating a trend change

Gold: Sharp bounce falling short of indicating a trend change

XAUUSD bounced from a fresh two-year low of $1,614.81 a troy ounce as dip buyers appeared on the dollar’s extreme overbought conditions. The bright metal peaked at $1,661.57, its highest for the week, holding above the $1,650 mid-US afternoon.

Gold News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Whale Watching 102 - Don't become the bait

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Whale Watching 102 - Don't become the bait

Statistically, October and November are usually bullish months for crypto. There is nothing wrong with casting a rod in treacherous water, but risk management should be applied. Don't become the bait when fishing for gains.

Read more

TIPS – A misunderstood inflation hedge

TIPS – A misunderstood inflation hedge

With inflation high and volatile, and with uncertainty about how quickly inflation might return to pre-Covid levels, should investors consider Treasury Inflation Protected Securities (“TIPS”) as part of a conservative portfolio allocation or for portfolio diversification? To answer the question, it is helpful to understand what TIPS are and how they work in practice.

Read more

Forex MAJORS

Cryptocurrencies

Signatures