The US Dollar Index (DXY) remained in a tight range on Tuesday as market participants waited for the upcoming US Consumer Price Index (CPI) data. It was trading at $98.50, higher than the year-to-date low of $9632.
US Inflation report ahead
The DXY Index rose to $98.50 ahead of the July consumer inflation data, which will guide the path for interest rates this year. Economists polled by Reuters expect the data to show that inflation remained steady last month.
The average estimate is that the headline CPI moved from 0.3% in June to 0.2% in July. It will then move from 2.7% to 2.8%, moving further away from the Federal Reserve’s target of 2.0%.
The closely-watched core consumer inflation data is expected to move from 0.2% to 0.3% on a monthly basis and from 2.9% to 3.0% on a month-on-month basis.
Inflation is expected to hold steady because of Donald Trump’s tariff policy, which he believes will lead to a manufacturing boom in the United States and reduce the huge trade deficits.
On Monday, Trump extended the truce with China by 90 days to allow for more discussions on a trade deal. As things stand, most Chinese goods are being charged a 30% tariff, which, while significant, is lower than the previous 145%.
Trump has reached deals with other important countries recently. He placed a 15% tariff on goods from the European Union, and a similar one on Japanese and South Korean. Sectoral tariffs, such as the 25% levy on steel, aluminium, and cars remain.
US jobs report and Fed action
The upcoming US jobs data comes days after the Bureau of Labor Statistics (BLS) published weak consumer inflation data. This report showed that the economy created 73,000 jobs, much lower than the expected 110k.
Worse, the bureau revised the previous jobs report downward, implying that the economy created just 35,000 jobs in June and May. The unemployment rate rose slightly to 4.2% during the month.
Therefore, the odds of a Federal Reserve interest rate cut will rise if the jobs report comes short of expectations. Most analysts already expect the bank to cut rates by 0.25% in the upcoming meeting in September.
They also expect more rate cuts through next year as Trump nominates Jerome Powell’s replacement. Some of the potential names are Christopher Waller, Michele Bowman, Kevin Warsh, and Kevin Hassett.
US Dollar Index technical analysis
The daily chart shows that the DXY Index remained under pressure in the past few months. It dropped from the year-to-date high of $110.13 in January to the current $98.48.
It has moved below the 50-day and 100-day Exponential Moving Averages (EMA) and the key support at $100.14, the lowest swing since September last year.
The index has also formed an inverse cup-and-handle pattern, which is a common continuation sign. Therefore, it will likely continue falling as sellers target the year-to-date low of $96.32. A move below that level will point to moe downside this year.
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