The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, climbs to a five-day high on Tuesday as stronger-than-expected US inflation data bolsters the hawkish Federal Reserve (Fed) outlook. At the time of writing, the DXY is trading around 98.38, up roughly 0.45% on the day.
Meanwhile, ongoing uncertainty surrounding US-Iran peace negotiations and growing doubts over the durability of the current ceasefire support safe-haven demand for the Greenback.
US consumer inflation accelerated in April, largely driven by higher energy prices amid supply disruptions around the Strait of Hormuz. Data released by the Bureau of Labor Statistics showed the headline Consumer Price Index (CPI) rose 0.6% MoM in April after increasing 0.9% in March, matching market expectations, while annual inflation accelerated to 3.8% from 3.3% previously, above forecasts of 3.7%.
Meanwhile, core CPI, which excludes volatile food and energy prices, rose 0.4% MoM, up from 0.2% in March and above expectations of 0.3%. On an annual basis, core inflation climbed to 2.8% from 2.6%, also exceeding forecasts of 2.7%.
Following the release, US Treasury yields moved sharply higher as traders scaled back expectations for near-term Fed rate cuts. According to the CME FedWatch Tool, the probability of a rate hike at the September meeting currently stands near 20%, rising to around 40% for the December meeting.
Looking ahead, traders will continue to closely monitor developments surrounding the US-Iran negotiations, while attention also turns to upcoming US economic data, including the Producer Price Index (PPI) report due on Wednesday and Retail Sales data scheduled for release on Thursday.
Technical Analysis:
In the daily chart, Dollar Index Spot trades at 98.39, holding below a tight band of key moving averages and keeping a modest bearish bias intact. The 100-day Simple Moving Average (SMA) at 98.46, the 200-day SMA at 98.53 and the 50-day SMA at 99.00 all sit overhead, suggesting rallies are likely to encounter supply near this cluster. Momentum remains subdued, with the Relative Strength Index (14) hovering just below the midline and the Moving Average Convergence Divergence (MACD) fractionally negative, hinting at a waning but still fragile recovery tone.
On the topside, initial resistance is seen at the 100-day SMA near 98.46, followed by the 200-day SMA around 98.53, while a stronger barrier emerges at the 50-day SMA at 99. On the downside, the next notable cushion is the horizontal support level at 97.83, where buyers previously emerged, and a break below this floor would reinforce the broader bearish narrative.
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