US Dollar Index (DXY) News: Dollar Slips as Rate Cut Expectations Rise After CPI Data

Dollar Weakens as Inflation Data Fuels Rate Cut Expectations

The U.S. Dollar traded lower against major currencies on Wednesday following the release of key inflation data. Traders are increasingly betting on a Federal Reserve rate cut in September, putting pressure on the greenback. This shift in sentiment comes as market participants interpret recent economic indicators as signs of cooling inflation.

At 14:23 GMT, the U.S. Dollar Index is trading 102.393, down 0.210 or -0.20%.

Consumer Price Index Meets Expectations

July’s Consumer Price Index (CPI) showed a 0.2% monthly increase, aligning with economists’ forecasts. The 12-month inflation rate came in at 2.9%, slightly below the anticipated 3%. Core CPI, excluding food and energy, rose 0.2% monthly and 3.2% annually, meeting expectations. These figures suggest that inflationary pressures may be easing, potentially giving the Fed room to consider monetary policy adjustments.

Treasury Yields and Rate Cut Probabilities

U.S. Treasury yields saw a slight increase as investors digested the inflation data. The CME FedWatch Tool indicated a 100% probability of a rate cut in September, with traders split between a 25 or 50 basis point reduction. This shift in expectations follows Tuesday’s softer-than-expected Producer Price Index (PPI) data, which showed a 0.1% monthly increase against a forecast of 0.2%.

Impact on Other Currencies

Sterling eased after UK inflation data came in lower than expected, rising 0.2% to $1.28415. The softer inflation figures led to increased speculation about potential Bank of England rate cuts, with financial markets pricing in a 44% chance of a quarter-point cut in September, up from 36% before the data release.

The euro reached a seven-month high of $1.1010 against the weakening dollar, benefiting from the greenback’s broad-based decline. The Japanese yen showed minimal reaction to Prime Minister Fumio Kishida’s decision not to seek reelection, with the dollar up 0.2% at 147.20 yen.

Gold Market Response

Gold prices edged lower as the CPI data failed to push the market to a new record high above $2483.74. The precious metal’s performance remains closely tied to interest rate expectations and dollar strength.

Market Forecast

The consistent inflation data and increasing rate cut expectations point to a bearish outlook for the U.S. Dollar in the short term. Traders should watch for further signs of economic slowdown and potential shifts in Federal Reserve policy, which could continue to pressure the greenback against major currencies.

As the September 18 Fed meeting approaches, market volatility may increase. Traders should pay close attention to upcoming economic data releases and Fed communications for clues about the central bank’s next moves. The current market sentiment suggests a higher probability of looser monetary policy, which could have significant implications for currency pairs, bond yields, and commodity prices in the coming weeks.

Technical Analysis

The U.S. Dollar Index is under pressure on Wednesday. The currently downside momentum suggests sellers are gunning for the recent bottom at 102.160. Since it is a minor level, it’s not expected to hold as support.

The index has been in “sell the rally” mode since crossing to the weakside of the 50-day moving average on August 2. The nearest resistance is a pivot at 103.480.