US Dollar Forecast: Key Support at 103.37 Holds Ahead of PPI Release

Dollar Index Holds Gains as Traders Await PPI Report and Fed Outlook

The U.S. Dollar Index (DXY) remains firm as traders brace for key inflation data, with the Producer Price Index (PPI) set for release today. Following a softer-than-expected Consumer Price Index (CPI) reading, markets are keen to see if wholesale inflation supports the case for Federal Reserve rate cuts. However, persistent price pressures and escalating trade tensions present risks to dollar stability.

Inflation Data to Drive Dollar Volatility

February’s CPI report showed a 2.8% year-over-year increase, slightly easing from January’s 3%. While this reinforced hopes of a cooling inflation trend, the Fed’s preferred Personal Consumption Expenditures (PCE) index remained elevated. Additionally, ISM manufacturing surveys indicate rising input costs, suggesting underlying price pressures persist.

Treasury yields, currently near 4.3%, could see sharp moves depending on the PPI outcome. A stronger-than-expected print could push yields higher, strengthening the dollar by delaying Fed rate cut expectations. Conversely, a softer PPI reading may fuel rate-cut bets, weighing on the greenback. Traders anticipate three quarter-point cuts by year-end, with the first expected in June. However, today’s data could reshape those forecasts.

Trade Uncertainty Adds to Market Jitters

The dollar has been supported by trade uncertainty, particularly as President Trump signals potential tariffs on China, Canada, and the EU. This has raised concerns over retaliatory measures that could stoke inflation, complicating the Fed’s policy path.

Recent headlines suggest growing tensions between the U.S. and Europe, with the EU threatening countermeasures on U.S. goods. Such trade risks could increase price pressures and force the Fed to keep rates higher for longer, lending support to the dollar. However, if trade concerns escalate into full-scale disputes, global risk sentiment could deteriorate, leading to shifts in capital flows.

Technical Levels Hold Key to Dollar Direction

DXY is holding above key support at 103.373, preventing a sharper sell-off. However, upside resistance remains at the 61.8% retracement level of 103.984 and the 200-day moving average at 104.978. A sustained break above these levels could open the door for further gains.

Against major currencies, the dollar has gained 0.37% versus the yen but remains weaker against the Swiss franc and Canadian dollar. The euro, after reaching a five-month high, has eased slightly as traders assess European economic and political developments.

Market Outlook: Inflation Data to Set Near-Term Tone

Today’s PPI report is a critical catalyst for dollar movement. A stronger-than-expected reading could reinforce the Fed’s cautious stance, supporting the greenback and pressuring risk assets. On the other hand, a weaker print may revive expectations for rate cuts, weakening the dollar and boosting equities.

Traders should closely watch Treasury yields, Fed fund futures, and broader risk sentiment as markets react to the data. DXY’s near-term direction hinges on whether inflation confirms cooling trends or forces the Fed to reconsider its easing plans.

More Information in our Economic Calendar.