US Dollar Forecast: Will Hot CPI Data Drive DXY Higher and Deepen Gold’s Decline?

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Updated: Dec 7, 2024, 17:10 GMT+00:00

Key Points:

CPI data may rise above the Fed's 2% target, potentially boosting DXY while adding pressure on gold markets this week.
CPI data may rise above the Fed's 2% target, potentially boosting DXY while adding pressure on gold markets this week.
Falling Treasury yields signal dovish expectations, aiding DXY’s stability as gold prices struggle for upward momentum.
DXY faces critical resistance at 107.02, with a breakout targeting 108.071 if CPI data surprises to the upside.
Gold prices remain under pressure, with potential for further declines as the dollar reacts to key inflation data.

Mixed Payroll Data Fuels Dollar Volatility

The U.S. Dollar Index (DXY) traded within a tight range this week as markets reacted to November’s jobs report. Nonfarm payrolls rose by 227,000, exceeding the consensus estimate of 200,000. However, the unemployment rate climbed to 4.2%, its highest since August, reflecting weakness in household employment. This mixed data added complexity to the Federal Reserve’s rate-cut expectations for its December 17–18 meeting, where a 25-basis-point cut is widely anticipated.

Treasury Yields Drop as Rate Cut Bets Rise

Daily US Government Bonds 10-Year Yield

Treasury yields fell sharply, reinforcing dovish market sentiment. The benchmark 10-year yield declined to 4.15%, while the 2-year yield eased to 4.08%. Lower yields bolstered expectations for easing monetary policy, dampening the dollar’s momentum. Declining yields also pressured the dollar’s performance against currencies like the yen, while providing partial support for gold prices.

Gold Prices Face Dual Pressures from Dollar and Yields

Daily Gold (XAU/USD)

Gold traded lower this week, settling at $2,633 per ounce, down 0.64%. While geopolitical tensions and economic uncertainty supported safe-haven demand, gold’s performance was capped by the dollar’s strength and subdued Treasury yields. Typically, lower yields enhance gold’s appeal as a non-yielding asset, but the resilient dollar and lack of significant shifts in inflation expectations limited gold’s upside.

Technical Factors Play a Key Role in Dollar’s Range

Daily US Dollar Index (DXY)

The DXY bounced slightly below critical support at 105.722 after briefly testing 106.731—just below pivot resistance at 106.746. A sustained breakout above 106.746 could pave the way for a move toward the November high of 108.071. Conversely, renewed selling pressure below 105.420 would increase the likelihood of a decline toward 104.114, a pivotal support level.

Next Week: CPI Data and Treasury Moves to Define Direction

Inflation Report Holds the Key for the Dollar

The upcoming Consumer Price Index (CPI) report will serve as a major catalyst for DXY movements. Market consensus expects core CPI to increase by 0.3% month-over-month and annual inflation to reach 2.7%. A higher-than-expected reading could strengthen the dollar, driving it toward resistance at 108.071. On the other hand, softer inflation could weaken the greenback, testing support near 104.114.

Impact of Yields on Dollar and Gold to Persist

Treasury yields will continue to play a pivotal role in shaping the dollar’s performance and gold prices. Stronger-than-expected CPI data could lift yields, supporting the dollar while pressuring gold. Conversely, weaker inflation may push yields lower, providing a tailwind for gold and limiting dollar gains.

Traders should prepare for heightened activity, as the interplay between inflation data, Federal Reserve policy expectations, and Treasury yields is likely to dominate market sentiment across the dollar, gold, and bond markets in the coming week.

More Information in our Economic Calendar.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.