US Dollar Index News: DXY Nears Two-Week Low as Markets Eye CPI Data

Highlights

• U.S. dollar nears two-week low, pressured by dwindling Treasury yields amid cautious Fed stance.
• Markets on high alert for September’s U.S. Consumer Price Index; consensus leans toward cooling inflation.
• Federal Reserve minutes reveal a house divided on the path of interest rate hikes.

Dollar Dips on Fed Minutes, Awaits CPI Data

The dollar is hovering near a two-week low as markets brace for pivotal U.S. inflation data that could shape the Federal Reserve’s monetary moves. The greenback’s recent decline has been driven by softer yields on U.S. Treasuries, reflecting the Fed’s more cautious outlook on interest rate increases.

Key Inflation Figures in Spotlight

The dollar index sits at 105.69, just above its lowest point since September 25. All eyes are now on the U.S. Consumer Price Index for September, due to be released at 12:30 GMT. The consensus expects a 0.3% month-over-month rise and a 3.6% year-over-year increase, signaling a cooling inflation rate compared to August.

Fed’s Next Moves

The minutes from the Fed’s last meeting revealed divided opinions among policymakers, contributing to the dollar’s lackluster performance. On one hand, a lower-than-expected inflation figure would support the idea that the Fed’s tightening cycle has concluded, thus pressuring both U.S. Treasury yields and the dollar. On the other hand, a surprise inflation uptick could fuel expectations of further rate hikes.

Market Pricing and Currency Pairs

The CME FedWatch tool shows futures markets are factoring in a 26% likelihood of a 25 basis point increase in the Fed funds rate by December. Currency pairs like EUR/USD and GBP/USD remained relatively stable, though the pound showed slight weakness due to sluggish British economic growth figures.

Short-Term Forecast: Cautiously Bearish

Given the caution expressed in the Fed’s recent minutes and the market’s anxious anticipation of the inflation data, the short-term outlook for the dollar leans bearish. While an upside surprise in inflation could shift sentiment, current indicators and market pricing suggest a softer stance on the U.S. currency.

Technical Analysis

Te current daily price of the DXY at 105.705 is above both the 200-day moving average of 103.188 and the 50-day moving average of 104.620. This indicates a bullish sentiment in both the short-term and long-term.

The index is also narrowly above its minor support level at 105.691, adding further weight to a bullish interpretation.

However, the market is also trading on the weakside of a long-term uptrending line. This is potentially bearish and could trigger an acceleration to the downside with the 50-day moving average at 104.620 the first key target level.

Upside momentum is slowing, making the market vulnerable to a near-term correction. Recapturing the uptrending support line will put the index back on its bullish course.