Dollar Outlook: The probability of a Fed rate cut is 98%, and the bearish pressure on the US dollar index has intensified.
2025-08-14 01:03:12
The US dollar index (DXY) continued its decline for a second consecutive trading day during US trading on Wednesday (August 13), impacted by weak inflation data and rising market expectations of a Federal Reserve rate cut next month. The index closed at 97.81, its lowest close since July 28. Following a 0.5% drop on Tuesday, it fell another 0.2% on Wednesday. This trend reflects an intensification of bearish sentiment as traders factor in aggressive policy easing expectations.
CPI data and political pressure raise the probability of a Fed rate cut
July's CPI data showed only a slight increase, in line with expectations. This result eased concerns that recent tariff increases were pushing up consumer price pressures. According to data from the London Stock Exchange Group (LSEG), federal funds futures currently imply a 98% probability of a rate cut at the Federal Reserve's next meeting, with the market even considering the possibility of a 50 basis point cut.
The Federal Reserve is also facing increasing political pressure. Treasury Secretary Scott Bessant has publicly advocated for a "series of rate cuts," while President Trump has intensified his criticism of Fed Chair Powell. The administration has even proposed legal action over renovations to the Fed headquarters. This political interference could undermine the central bank's credibility and further pressure the dollar.
Global currencies rise as dollar momentum fades
A weaker dollar index supported gains in major currencies. The euro rose 0.3% to $1.1705, its highest level since July 28, while the British pound rose 0.5% to $1.3572. Despite weak employment data, the pound benefited from the Bank of England's cautious stance.
Commodity currencies also saw buying, with the Australian dollar and New Zealand dollar rising 0.26% and 0.37% respectively. The Reserve Bank of Australia cut interest rates as expected, but left the door open for further easing.
Treasury yields fall as inflation outlook eases
Bond markets saw a broad decline in yields. The 10-year Treasury yield fell to 4.233%, while the 2-year yield fell more than 6 basis points to 3.681%. Inflation data, coupled with rising expectations for rate cuts, led to lower yields across the yield curve. Traders are preparing for Thursday's Producer Price Index (PPI) report and Friday's retail sales and consumer confidence data for further clues about the Federal Reserve's next move.
(Source of US Dollar Index daily chart: Yihuitong)
From a technical perspective, the US Dollar Index has fallen below its 50-day moving average (98.10) and is currently testing near-term support at 97.945. A continued decline would place downside risk at 97.109 and the July low of 96.377. Resistance lies at 98.317 and 98.683, with stronger overhead resistance near 99.177 and 99.838. Below the 200-day moving average (104.086), long-term momentum remains bearish.
Market Outlook: The US dollar index faces further downside risks
With the Fed's dovish outlook fully priced in and political noise intensifying, the US dollar index remains under pressure. Barring a positive surprise in Friday's retail sales or consumer confidence data, the most likely path for the dollar remains down. Technical breakdowns and a compressed yield curve further support the dollar's near-term bearish outlook.
At 01:01 Beijing time, the US dollar index was at 97.7839/040, down 0.27%.
CPI data and political pressure raise the probability of a Fed rate cut
July's CPI data showed only a slight increase, in line with expectations. This result eased concerns that recent tariff increases were pushing up consumer price pressures. According to data from the London Stock Exchange Group (LSEG), federal funds futures currently imply a 98% probability of a rate cut at the Federal Reserve's next meeting, with the market even considering the possibility of a 50 basis point cut.
The Federal Reserve is also facing increasing political pressure. Treasury Secretary Scott Bessant has publicly advocated for a "series of rate cuts," while President Trump has intensified his criticism of Fed Chair Powell. The administration has even proposed legal action over renovations to the Fed headquarters. This political interference could undermine the central bank's credibility and further pressure the dollar.
Global currencies rise as dollar momentum fades
A weaker dollar index supported gains in major currencies. The euro rose 0.3% to $1.1705, its highest level since July 28, while the British pound rose 0.5% to $1.3572. Despite weak employment data, the pound benefited from the Bank of England's cautious stance.
Commodity currencies also saw buying, with the Australian dollar and New Zealand dollar rising 0.26% and 0.37% respectively. The Reserve Bank of Australia cut interest rates as expected, but left the door open for further easing.
Treasury yields fall as inflation outlook eases
Bond markets saw a broad decline in yields. The 10-year Treasury yield fell to 4.233%, while the 2-year yield fell more than 6 basis points to 3.681%. Inflation data, coupled with rising expectations for rate cuts, led to lower yields across the yield curve. Traders are preparing for Thursday's Producer Price Index (PPI) report and Friday's retail sales and consumer confidence data for further clues about the Federal Reserve's next move.
(Source of US Dollar Index daily chart: Yihuitong)
From a technical perspective, the US Dollar Index has fallen below its 50-day moving average (98.10) and is currently testing near-term support at 97.945. A continued decline would place downside risk at 97.109 and the July low of 96.377. Resistance lies at 98.317 and 98.683, with stronger overhead resistance near 99.177 and 99.838. Below the 200-day moving average (104.086), long-term momentum remains bearish.
Market Outlook: The US dollar index faces further downside risks
With the Fed's dovish outlook fully priced in and political noise intensifying, the US dollar index remains under pressure. Barring a positive surprise in Friday's retail sales or consumer confidence data, the most likely path for the dollar remains down. Technical breakdowns and a compressed yield curve further support the dollar's near-term bearish outlook.
At 01:01 Beijing time, the US dollar index was at 97.7839/040, down 0.27%.
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