US Dollar Bulls Look to Take a Breath But PPI Data May Extend Run

NEW YORK (October 11) The US Dollar Index (DXY) continued its ascent yesterday to tap a fresh high before finishing the day flat. Some mixed price action thus far this morning leaves and PPI data ahead leaves the Dollar in an intriguing position.

The FED minutes and US CPI releases have kept the greenback largely supported this week as safe-haven demand waned. The data itself was a mixed bag but has raised questions about Fed rate cuts moving forward, which has been a positive for the greenback.

CPI inflation came in higher than expected, with the core rate increasing from 3.2% to 3.3% year-on-year, thanks to a second straight 0.3% monthly rise. In ideal trading conditions, this would boost the dollar, but this did not materialize.

US Core Inflation Rate YoY

Source: TradingEconomics

The explanation could be down to the shifting focus to the jobs market. This seems to be the narrative since the downward revisions in jobs data a few months back. In such an instance CPI figures matter less. The unexpected rise in jobless claims could possibly due to the extreme weather, had a negative effect on the dollar.

It appears the US Dollar could be entering a new phase of ‘wait and see’ which would leave the DXY caught in a range. At present outside influences and developments could impact the longer-term trajectory of the US Dollar and Fed rate path.

A continued rise in Oil prices or an attack on Iranian energy facilities could lead to a surge in inflationary pressure and remains a key concern in the near term. An escalation in Middle East tensions is a double-edged sword, as it could help stir up inflation, while at the same time potentially seeing the US Dollar benefit from safe-haven demand.

Developments around the US Dollar and Dollar Index (DXY) have a wide impact on markets. Interesting times ahead for market participants with the US elections drawing near as well.

Investing.com