The US Dollar Index (DXY) extended its losses on Thursday, reacting to cooler-than-expected inflation data from the US Consumer Price Index (CPI). This renewed market expectations for a September interest rate cut by the Federal Reserve (Fed), despite officials maintaining a cautious stance.
Market Reactions and Fed Commentary
Fed Chair Jerome Powell reiterated the need for continued vigilance in managing inflation, indicating that the Fed’s job is not yet done. While acknowledging the recent progress in curbing inflation, Powell stressed the importance of data-driven decision-making before implementing rate cuts.
The June CPI report revealed a decline in both headline and core inflation, further bolstering the case for easing monetary policy. This sparked a wave of selling pressure on the USD, pushing the DXY below key technical levels.
DXY Technical Analysis: Bearish Momentum Builds
The DXY’s break below the 100-day Simple Moving Average (SMA) has intensified the bearish outlook for the US Dollar. Both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators have turned negative, signaling a shift in momentum.
The next potential support level for the DXY lies at the 200-day SMA, which could act as a critical bottom for the market. Failure to hold above this level could trigger further downside pressure on the USD.
Key Points:
- US Dollar weakens further on soft inflation data.
- Market expectations for a September rate cut solidify.
- Fed officials remain cautious, emphasizing data-driven decision-making.
- DXY breaks below 100-day SMA, signaling intensified bearish momentum.
- 200-day SMA emerges as critical support level for the USD.
