US Dollar Forecast: Bearish Pressure Builds as Inflation Report Looms

U.S. Dollar Weakens as Traders Await Inflation Data

The U.S. Dollar Index remained under pressure on Tuesday, hovering around the key support level of 103.373. Despite brief attempts to stabilize, the index faced multiple resistance levels, limiting any potential upside. Without a strong catalyst, rallies are expected to be met with selling pressure, reinforcing the bearish outlook.

At 10:28 GMT, the DXY is trading 103.431, down 0.473 or -0.45%.

Technical Resistance Limits Dollar Rebound

The dollar index is confronting multiple resistance points, including Fibonacci resistance at 103.984, the 200-day moving average at 104.983, and the 50% retracement level at 105.167. A break above 105.167 could trigger an acceleration toward the 50-day moving average at 107.507. However, without a fundamental driver, upward movements will likely be short-covering opportunities rather than a sustained rally.

If the index falls below 103.373 with conviction, downside momentum could accelerate, pushing the dollar toward the next major support zone between 100.157 and 99.482. Given the lack of bullish momentum, the path of least resistance remains downward.

Treasury Yields Climb Ahead of Inflation Report

U.S. Treasury yields rose on Tuesday as investors positioned themselves ahead of Wednesday’s Consumer Price Index (CPI) report. The 10-year Treasury yield climbed nearly 7 basis points to 4.278%, while the 2-year yield edged 4 basis points higher to 3.937% after briefly touching its lowest level since October.

Market participants are closely monitoring the February CPI report, with economists forecasting a 0.3% month-over-month increase and a 2.9% annual rise. Core CPI, which excludes volatile food and energy prices, is expected to rise 3.2% year over year. Thursday’s Producer Price Index (PPI) release will provide further insight into inflation trends, influencing expectations for the Federal Reserve’s policy decision later this month.

Geopolitical and Trade Developments Add Uncertainty

Global events also weighed on market sentiment. President Donald Trump announced plans to double tariffs on Canadian steel and aluminum imports to 50% following Ontario’s decision to impose a 25% duty on U.S. electricity exports. However, later developments saw Ontario temporarily suspending its surcharge, prompting Trump to indicate a potential tariff reduction.

Meanwhile, Ukraine signaled willingness to agree to a 30-day ceasefire if Russia accepts, following negotiations mediated by the U.S. This development led to renewed U.S. security assistance and intelligence sharing with Ukraine, adding geopolitical complexity to market dynamics.

Market Outlook: Bearish Bias Prevails

With the dollar struggling to gain traction, resistance levels remain a hurdle for any sustained recovery. A softer-than-expected inflation report could further pressure the dollar, increasing expectations for Federal Reserve rate cuts. Conversely, a hotter inflation reading may stabilize the dollar temporarily. However, without a significant catalyst, the broader trend suggests further downside risk in the near term.

More Information in our Economic Calendar.