US Dollar Outlook: CPI Data Reinforces Expectations of Fed Pause, Dollar Strengthens
2026-01-14 00:52:57
On Tuesday (January 13), during the US trading session, the US December Consumer Price Index (CPI) rose, reinforcing market expectations that the Federal Reserve would keep interest rates unchanged at the end of the month, and the US dollar index rose slightly. The distortion effect of inflation artificially suppressed in November due to the government shutdown has been eliminated, and the true inflation situation has become apparent.
December CPI rose 0.3% – in line with economists' expectations
The U.S. Bureau of Labor Statistics (BLS) reported Tuesday that the Consumer Price Index (CPI) rose 0.3% month-over-month in December. Over the 12 months ending in December, the CPI rose 2.7% year-over-year, unchanged from November's increase. Economists had previously predicted a 0.3% month-over-month increase. The BLS estimates the CPI rose 0.2% month-over-month between September and November.
Inflation data temporarily supports the dollar – expectations of interest rate cuts remain.
Overall, the CPI data provided short-term support for the dollar, as it did not give the Federal Reserve a reason to cut interest rates later this month. However, it also gives the Fed more room to cut rates in the future, which could limit the dollar's upside potential throughout the year, and could even threaten last year's lows if the central bank takes aggressive rate cuts.
Tensions in Iran trigger safe-haven demand
U.S. Treasury yields were flat or lower, which may have limited the dollar's upward breakout today, but the dollar as a whole remained strong, suggesting that there may be other driving factors, such as safe-haven buying related to escalating geopolitical tensions with Iran, which could provide support to the market.
The dollar rebounded from the sell-off triggered by the Trump-Powell investigation.
Traders should also note that the index has recovered from yesterday's losses caused by the turmoil triggered by President Trump and Federal Reserve Chairman Powell. On Monday, the U.S. Department of Justice launched an investigation into Powell, which traders viewed as an attempt to influence the Fed's interest rate cuts.
Technical Analysis: US Dollar Index Tests Key Retracement Zone
(US Dollar Index Daily Chart Source: FX678)
From a technical perspective, according to the oscillator chart, the trend is upward. The US dollar index is currently above the 200-day moving average of 98.632 and the 50-day moving average of 99.094, which provides additional support for the trend indicators.
The 99.072–99.384 retracement range could potentially hinder a bullish breakout. Currently, the index is fluctuating around this range. A sustained break below the lower limit of 99.072 could indicate intraday weakness. Conversely, a break above the upper limit of 99.384 could trigger further acceleration in the upward movement.
Market Outlook: With the market above the 200-day moving average, the bullish trend remains intact.
Looking ahead, as long as the index remains above the 200-day moving average of 98.632, the upward bias is bullish. If the upward momentum continues to strengthen and breaks through the 50% retracement level of 99.072, buying pressure may further challenge 99.384. If a strong momentum can break through this level, a new round of upward movement is expected to begin, with the main target at 100.39.
December CPI rose 0.3% – in line with economists' expectations
The U.S. Bureau of Labor Statistics (BLS) reported Tuesday that the Consumer Price Index (CPI) rose 0.3% month-over-month in December. Over the 12 months ending in December, the CPI rose 2.7% year-over-year, unchanged from November's increase. Economists had previously predicted a 0.3% month-over-month increase. The BLS estimates the CPI rose 0.2% month-over-month between September and November.
Inflation data temporarily supports the dollar – expectations of interest rate cuts remain.
Overall, the CPI data provided short-term support for the dollar, as it did not give the Federal Reserve a reason to cut interest rates later this month. However, it also gives the Fed more room to cut rates in the future, which could limit the dollar's upside potential throughout the year, and could even threaten last year's lows if the central bank takes aggressive rate cuts.
Tensions in Iran trigger safe-haven demand
U.S. Treasury yields were flat or lower, which may have limited the dollar's upward breakout today, but the dollar as a whole remained strong, suggesting that there may be other driving factors, such as safe-haven buying related to escalating geopolitical tensions with Iran, which could provide support to the market.
The dollar rebounded from the sell-off triggered by the Trump-Powell investigation.
Traders should also note that the index has recovered from yesterday's losses caused by the turmoil triggered by President Trump and Federal Reserve Chairman Powell. On Monday, the U.S. Department of Justice launched an investigation into Powell, which traders viewed as an attempt to influence the Fed's interest rate cuts.
Technical Analysis: US Dollar Index Tests Key Retracement Zone
(US Dollar Index Daily Chart Source: FX678)
From a technical perspective, according to the oscillator chart, the trend is upward. The US dollar index is currently above the 200-day moving average of 98.632 and the 50-day moving average of 99.094, which provides additional support for the trend indicators.
The 99.072–99.384 retracement range could potentially hinder a bullish breakout. Currently, the index is fluctuating around this range. A sustained break below the lower limit of 99.072 could indicate intraday weakness. Conversely, a break above the upper limit of 99.384 could trigger further acceleration in the upward movement.
Market Outlook: With the market above the 200-day moving average, the bullish trend remains intact.
Looking ahead, as long as the index remains above the 200-day moving average of 98.632, the upward bias is bullish. If the upward momentum continues to strengthen and breaks through the 50% retracement level of 99.072, buying pressure may further challenge 99.384. If a strong momentum can break through this level, a new round of upward movement is expected to begin, with the main target at 100.39.
- Risk Warning and Disclaimer
- 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.
