- The US Dollar Index holds steady after mixed inflation data.
- US inflation eased to 2.5% year-over-year in August.
- Core CPI stayed unchanged at 3.2% annually in August.
- Market response indicates increased expectations for a 25-basis-point rate cut by the Federal Reserve.
The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, lost ground following the release of mixed August inflation data. Although overall inflation fell to 2.5% year-over-year, the core Consumer Price Index (CPI) remained steady at 3.2%, suggesting persistent inflationary pressures. This has diminished the likelihood of a 50-basis-point interest rate cut by the Federal Reserve (Fed) in September, shifting expectations towards a more modest 25-basis-point reduction.
Despite the mixed data, the US economy continues to perform well, exceeding expectations. While markets are anticipating some degree of monetary easing, it is important to temper expectations. The current economic growth trajectory suggests that more aggressive easing measures may not be warranted. A balanced approach is necessary, recognizing both the strength of the economy and the need for cautious optimism in policy decisions.
Daily Digest Market Movers: DXY Flat After CPI Figures
- Annual US CPI inflation eased to 2.5% in August, down from 2.9% in July, marking the lowest level since April 2018.
- Annual core CPI, which excludes volatile food and energy prices, remained steady at 3.2% in August, as anticipated.
- Monthly CPI increased by 0.2%, while core CPI rose by 0.3%, both surpassing market expectations.
- In response, the US Dollar Index (DXY) remained flat as traders adjusted their expectations for a 50-basis-point rate cut by the Federal Reserve, now pricing in an 85% chance of a 25-basis-point cut.
Daily Digest Market Movers: DXY Threatens the 20-Day SMA
Technical analysis of the DXY index shows indicators in negative territory but flattening. The index regained the 20-day Simple Moving Average (SMA) around 101.60 on Tuesday, which has improved the short-term outlook.
The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are flat in negative territory, suggesting no immediate bearish threat. While upside potential appears limited, buyers still have room to advance.
Key support levels are at 101.60, 101.30, and 101.00, while resistance levels are at 101.80, 102.00, and 102.30.
