US Dollar dives after soft CPI, eyes on PPI and Retail Sales

The DXY index declined to 104.05, its lowest level since early September and below the 100-day SMA.
The headline and core CPI from October came in lower than expected.
Investors are expecting rate cuts sooner, betting on no more hikes by the Fed in 2023.

Patricio Martín FXStreet

The US Dollar (USD) experienced a substantial downward movement in Tuesday's session, and the DXY index, which measures the value of the US Dollar versus a basket of global currencies, tanked to 104.05 driven by a lower-than-expected CPI and dovish bets on the Fed. Focus now shifts to the Producer Price Index (PPI) and Retail Sales figures from October on Wednesday.

As the United States economy recently printed lower than expected job creation and inflation figures, markets are taking off the table a rate hike at the next Federal Reserve (Fed) meeting in December. In addition, investors are seeing rate cuts sooner, in May 2024. This has made US Treasury yields decline, thus giving the market a reason to lose interest in the US Dollar.

Daily Digest Market Movers: US Dollar weakens as soft CPI fuels dovish bets on the Fed

The US Dollar Index dived to 104.05, down more than 1% and standing near lows not seen since September, after the report of lower inflation figures.
The US Bureau of Labor Statistics reported that the Core Consumer Price Index (CPI) from October missed the consensus. It came in at 4% YoY vs the expected 4.1% and decelerated from its previous figure of 4.1%.
The headline figure came in at 3.2%YoY, below the consensus of 3.3% and in relation to its last reading of 3.7%.
US Treasury yields fell vertically with the 2-year rate declining to 4.86%, while the 5 and 10-year rates declined to 4.45% and 4.46%, respectively..
According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, below 10%. In addition, markets are now pricing in rate cuts in May 2024.
On Wednesday, the US will report Retail Sales from October, which are expected to have contracted by 0.3%, while the Producer Price Index (PPI) from the same month is expected to decelerate to 1.9% YoY.

Technical Analysis: US Dollar bears gain ground and challenges the 100-day SMA

Based on the daily chart, the DXY Index has a bearish bias as indicators are flashing signs of bears seizing control. The Relative Strength Index (RSI) is trending below its midline, while the Moving Average Convergence Divergence (MACD) histogram displays rising red bars.

Despite bears gaining ground and pushing the pair below the 20 and 100-day Simple Moving Average (SMA) in the short term, the DXY is still above the 200-day SMA. This suggests that bulls are in control in the broader context.

Support levels: 104.10, 103.60 (200-day SMA), 103.30.
Resistance levels: 104.15 (100-day SMA), 104.50, 105.00.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

AUD/USD: The 0.7000 level holds the downside…for now

AUD/USD has clinched its fourth consecutive daily pullback on Thursday, coming closer to the key 0.7000 region while breaking below the critical 200-day SMA at the same time. The Aussie’s decline comes on the back of further gains in the Greenback in a context of rising yields and Fed rate hike bets.

USD/JPY keeps the red near 158.00 as Japanese Yen firms up

USD/JPY retreats from three-week highs and holds losses near 158.00 in the Asian session on Thursday. Surging Japanese bond yields lift the Yen amid looming intervention risks, while the US Dollar preserves overnight gains to a two-month high amid hawkish Fed bets and elevated US bond yields.

Gold bounces off lows, still below $4,300

Gold builds on Wednesday’s retracement, briefly slipping back below $4,250 per troy ounce to attempt a lacklustre rebound afterwards. The better tone in the US Dollar, rising US Treasury yields and expectation of extra rate hikes by the Fed continue to weigh on the precious metal in the latter part of Thursday’s NA session.

XRP is flashing three bullish signals heading into a historically weak October

XRP (XRP) is still flashing 3 bullish signals across its holders, derivatives, and ETF data. These signals come as the token gave back part of its September gains on Thursday. The token traded near $1.50 at press time, down about 6.3% over 24 hours, according to BeInCrypto Markets data. The pullback still leaves XRP up over 15.6% on the week, a gain that tracks a broader market rally.

Advanced economies: From one example of resilience to another

History tends to repeat itself in advanced economies. Once again, growth ultimately fell short of expectations by only a small margin in the first half of 2026, despite the conflict in Iran. As early as 2025, the impact of tariffs was less severe than feared.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.