US Dollar Index News: DXY Rises on Surprisingly Strong Producer Price Data

Key Points

• Dollar Index advances post-PPI report.
• June rate cut likelihood now at 53%.
• Continued dollar strength anticipated in near future.

US Dollar Gains on High Producer Prices

The U.S. dollar experienced an upsurge following the release of higher-than-expected producer prices, influencing market expectations about the Federal Reserve’s interest rate decisions.

At 14:29 GMT, the U.S. Dollar Index (DXY) is trading 104.544, up 0.266 or +0.26%.

Producer Price Index Increases

The Producer Price Index (PPI) for January reported a 0.3% increase, exceeding predictions of a 0.1% rise. Year-over-year, the PPI showed a 0.9% growth, surpassing the expected 0.6% increase. Following this data, the dollar index, measuring the U.S. currency against six major counterparts, advanced by 0.3% to 104.60.

Market Sentiment and Federal Reserve Policies

Contrasting U.S. economic data initially pressured the dollar. Nevertheless, recent robust data and comments from Federal Reserve Chair Jerome Powell have reduced the likelihood of early, significant rate reductions. Market anticipation now suggests a 53% probability of a rate cut by June, a revision from the previous expectation of March.

Euro and Dollar Forecasts

Despite some market participants expecting a U.S. economic downturn in 2024, the euro declined by 0.3% to $1.0739. Bank of America predicts the euro/dollar rate to reach 1.15 by year-end. The European Central Bank’s rate cuts, expected to occur simultaneously with the Fed’s, could significantly influence global markets. The dollar also appreciated against the yen, rising 0.44% to 150.57 yen.

Short-Term Forecast

In the short term, the dollar is poised for continued strength, driven by the latest producer price data and speculation regarding the Fed’s rate cut schedule.

However, a growing appetite for risk could temper the dollar’s ascent, typically seen as a safe asset. While the euro is likely to stabilize, the pound’s gains on positive UK retail sales data may not substantially affect the Bank of England’s monetary stance. Investors should closely monitor ECB actions for their potential effects on the market.

Technical Analysis

The U.S. Dollar Index (DXY) is trading higher on Friday, but remains inside the huge range created on Tuesday in reaction to the robust consumer inflation report.

A prolonged move inside the 103.967 and 104.963 trading range will only increase the chances of a volatile breakout.

Taking out 104.963 could trigger a surge into the nearest resistance at 105.628. A break under 103.967 will likely lead to a test of the 200-day moving average at 103.692. If this level fails, the long-term trend will change to down.