USD Outlook: Range-bound until CPI data is released
2025-08-12 00:14:01
The US dollar showed some strength during the U.S. trading session on Monday (August 11), firmly above its 50-day moving average at 98.200. Last week, the dollar index fell to 97.945 - right in the middle of its short-term retracement range - but buyers seemed to hold this support level.
The market is currently viewing 98.683 as a key pivot point. If the dollar can break through this level cleanly, it is expected to launch an attack on the strong resistance range around 99.17-99.83.
Market drivers
Market focus is entirely on tomorrow's US inflation data and whether China and the US will reach a consensus on a tariff extension. Traders have already begun adjusting their positions, as evidenced by today's mild volatility. A higher-than-expected CPI figure would raise the bar for a September rate cut by the Federal Reserve, which would tend to support the US dollar. However, if inflation cools, especially amidst a weakening labor market, the likelihood of a rate cut would increase, potentially weighing on the US dollar index.
Markets are currently pricing in a 90% probability of a rate cut next month, totaling approximately 58 basis points by year-end. This essentially translates to two 25 basis point cuts, with a possible third if conditions worsen. From a US dollar perspective, the prospect of a rate cut is generally bearish—unless other central banks around the world cut faster, as is currently happening with the Bank of England (BoE) and the Reserve Bank of Australia (RBA).
Technical Analysis
The US dollar index remains in a consolidation range, paring the excess gains accumulated earlier in the summer. Support lies around 97.85–97.95, where buyers have already entered the market twice. Resistance lies in the 98.68–99.17 range. A breakout typically requires a catalyst, and tomorrow's CPI data could provide just that. It's not hard to imagine a hawkish surprise (high inflation) sending the dollar surging by half a percentage point.
(Source of US Dollar Index daily chart: Yihuitong)
Why does inflation matter to the dollar?
Strong inflation data would likely push up US Treasury yields, supporting the US dollar—especially against the backdrop of weak European data and the Reserve Bank of Australia's dovish stance. Conversely, weak data would lower yields, escalating expectations of rate cuts, and potentially push the US dollar index back below its 50-day moving average. Trade news could exacerbate this volatility—a confirmed tariff suspension between China and the US could be positive for the US dollar in the short term, as it would remove the risk premium hanging over US economic growth.
Future Outlook
The US dollar index is more likely to remain range-bound ahead of the CPI data release. If other central banks around the world continue to cut interest rates, traders may view a pullback to around 98.00 as a potential buying opportunity. That said, a single weak inflation reading could quickly shift the market tone. We'll have to wait and see—but for now, the dollar is holding its ground, awaiting the next signal.
At 00:12 Beijing time, the US dollar index was 98.538/49, up 0.29%.
The market is currently viewing 98.683 as a key pivot point. If the dollar can break through this level cleanly, it is expected to launch an attack on the strong resistance range around 99.17-99.83.
Market drivers
Market focus is entirely on tomorrow's US inflation data and whether China and the US will reach a consensus on a tariff extension. Traders have already begun adjusting their positions, as evidenced by today's mild volatility. A higher-than-expected CPI figure would raise the bar for a September rate cut by the Federal Reserve, which would tend to support the US dollar. However, if inflation cools, especially amidst a weakening labor market, the likelihood of a rate cut would increase, potentially weighing on the US dollar index.
Markets are currently pricing in a 90% probability of a rate cut next month, totaling approximately 58 basis points by year-end. This essentially translates to two 25 basis point cuts, with a possible third if conditions worsen. From a US dollar perspective, the prospect of a rate cut is generally bearish—unless other central banks around the world cut faster, as is currently happening with the Bank of England (BoE) and the Reserve Bank of Australia (RBA).
Technical Analysis
The US dollar index remains in a consolidation range, paring the excess gains accumulated earlier in the summer. Support lies around 97.85–97.95, where buyers have already entered the market twice. Resistance lies in the 98.68–99.17 range. A breakout typically requires a catalyst, and tomorrow's CPI data could provide just that. It's not hard to imagine a hawkish surprise (high inflation) sending the dollar surging by half a percentage point.
(Source of US Dollar Index daily chart: Yihuitong)
Why does inflation matter to the dollar?
Strong inflation data would likely push up US Treasury yields, supporting the US dollar—especially against the backdrop of weak European data and the Reserve Bank of Australia's dovish stance. Conversely, weak data would lower yields, escalating expectations of rate cuts, and potentially push the US dollar index back below its 50-day moving average. Trade news could exacerbate this volatility—a confirmed tariff suspension between China and the US could be positive for the US dollar in the short term, as it would remove the risk premium hanging over US economic growth.
Future Outlook
The US dollar index is more likely to remain range-bound ahead of the CPI data release. If other central banks around the world continue to cut interest rates, traders may view a pullback to around 98.00 as a potential buying opportunity. That said, a single weak inflation reading could quickly shift the market tone. We'll have to wait and see—but for now, the dollar is holding its ground, awaiting the next signal.
At 00:12 Beijing time, the US dollar index was 98.538/49, up 0.29%.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
