US Dollar Forecast: DXY Rises as Treasury Yields Climb Ahead of U.S. Inflation Data

U.S. Dollar Gains as Treasury Yields Rise Ahead of Inflation Data

The U.S. Dollar Index (DXY) is advancing on Tuesday, driven by a rise in Treasury yields as traders brace for key U.S. inflation data.

The 10-year Treasury yield climbed 2 basis points to 3.719%, with the 2-year yield also up, making the dollar a more attractive asset.

Investors are positioning ahead of Wednesday’s Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI) reports, which are expected to guide the Federal Reserve’s interest rate decision at its September meeting. Higher yields often boost the dollar by offering investors better returns compared to other currencies.

A strong inflation print could prompt the Fed to maintain a hawkish stance, further supporting the dollar and putting pressure on other major currencies.

EUR/USD Weakens While GBP/USD Shows Resilience

The euro has come under pressure, with the EUR/USD pair declining after breaking below 1.1026, signaling a shift in the main trend. This move opens the door for a potential decline toward the 50-day moving average at 1.0958. The euro remains vulnerable to further losses if U.S. yields continue rising and inflation data comes in stronger than expected.

In contrast, GBP/USD is bucking the trend, edging higher despite dollar strength. The British pound is benefiting from robust UK labor market data, with wage growth cooling slightly but employment rising. Analysts expect the Bank of England (BoE) to begin cutting rates by year-end, but inflation is converging toward the BoE’s 2% target, which may slow the pace of cuts. The pair is approaching the uptrending 50-day moving average at 1.2941, which could act as support.

Gold Under Pressure as Dollar and Yields Rise

Gold prices remain rangebound, with the metal struggling to break out due to the strengthening dollar and rising Treasury yields. A stronger dollar typically weighs on gold, as it makes the metal more expensive for buyers holding other currencies. The pivot level at $2501.31 is crucial for determining the direction of gold, which has been fluctuating between the minor bottom at $2470.85 and the all-time high of $2531.77.

Gold could face further downside pressure if U.S. inflation data supports a more hawkish Fed stance, boosting both the dollar and yields. Traders are closely watching for signs of a breakout in either direction, but the current environment favors dollar-denominated assets over gold.

Market Forecast: Dollar Strength Likely to Continue

The U.S. dollar is expected to maintain its upward momentum if Treasury yields continue to rise and inflation data supports a hawkish Federal Reserve. A move above 101.917 will change the trend to up on the daily chart, while break above the key 102.040 level in the Dollar Index could trigger a further rally into the 50-day moving average at 103.070, likely putting pressure on gold and weakening the euro.