On Wednesday, July 15th, the US dollar index was fluctuating narrowly around 100.90. US June inflation, both on the consumer and producer sides, fell short of expectations, reducing the urgency of a near-term interest rate hike. However, intermediate input prices remained high, and oil prices and safe-haven premiums stemming from the Middle East conflict limited the dollar's decline. The market is currently not trading in a single direction, but rather on the time lag between "short-term inflation cooling" and "medium-term cost re-transmission."

Market Background: Why Didn't the US Dollar Index Continue to Fall in Response to Inflation Data?

The Producer Price Index (PPI) fell 0.3% month-on-month in June, significantly lower than the market expectation of +0.1%, and the year-on-year increase slowed to 5.5%. Logically, lower-than-expected inflation should reduce the probability of interest rate hikes and weaken the dollar's interest rate differential support. However, the dollar index remained around 100.9 because both interest rates and safe-haven demand are simultaneously priced in. The 10-year US Treasury yield briefly returned to around 4.604%, indicating that energy risks are still pushing up term premiums, thus the dollar did not fully follow the inflation data in weakening. Looking at the daily chart, the Bollinger Band middle line is at 100.8059, the upper line is at 101.9771, and the lower line is at 99.6348, with recent fluctuations concentrated between 100.55 and 101.32. Although the price has rebounded above the middle line, the MACD DIFF is 0.2680, lower than the DEA at 0.3584, and the histogram is -0.1809, indicating that the rebound momentum remains weak. Currently, it is closer to a range rebalancing rather than trend confirmation.

While the PPI surface cooled, the cost pipes did not actually cool down.

The recent PPI decline was primarily driven by energy prices. Final demand for energy fell 6.4% month-on-month, gasoline by 12.0%, diesel by 18.0%, and crude oil in the unprocessed goods index by 12.1%. This explains the rapid decline in the overall index and indicates that the previous energy shock is partially subsiding. The problem is that the PPI excluding food, energy, and trade services still rose 0.1% month-on-month and 5.1% year-on-year, meaning the underlying price pressures have not disappeared. Traders should pay more attention to the cost pipeline. Processed intermediate goods rose 11.1% year-on-year, unprocessed intermediate goods rose 13.0%, and first-stage intermediate demand rose 11.0%. Steel mill products rose 3.6% month-on-month and 16.9% year-on-year in June, aluminum rolled products rose 52.4% year-on-year, and electronic components and accessories rose 27.6% year-on-year. These data will not mechanically and proportionally translate to the consumer end, but in an environment where demand remains resilient, companies are more likely to absorb costs through price increases, delayed promotions, or reduced discounts, meaning core inflation may remain relatively sticky in the coming months. The gap between the 5.5% year-on-year increase in production and the 3.5% year-on-year increase in consumption also means that corporate profit margins are playing a partial buffering role. If end-user demand weakens, cost pressures may mainly manifest as profit contraction; if demand remains stable, upstream prices are more easily passed on to the retail end. Therefore, a lower-than-expected PPI can only change the recent policy pace and is not enough to prove that the complete inflation chain has reversed.

Williams is not signaling easing, but rather extending the observation period.

New York Fed President Williams recently stated that inflation "undoubtedly remains too high," but the current policy stance is "appropriate" to push inflation back to 2%. His core assessment is that inflation may have peaked and is expected to fall to around 3.25% by the end of the year, continuing to approach the target in 2027, and falling to 2% in 2028. He also projects real GDP growth of around 2% to 2.25% over the next few years, with the unemployment rate gradually declining to 4% by 2028. This statement neither foreshadows an immediate rate hike nor denies the possibility of further tightening. It's worth noting that the 3.25% year-end inflation forecast is lower than the 3.5% he mentioned in his public speech on June 25th, indicating that the latest inflation data is changing the benchmark path, but the Fed's target has not yet been achieved ahead of schedule. The latest market interest rate pricing still includes a tightening of approximately 27.7 basis points this year, effectively approaching a 25 basis point rate hike. The discrepancy between policy statements and market pricing constitutes the most important source of volatility in the dollar index. Williams' statement that "the current policy stance is appropriate" is closer to maintaining a restrictive interest rate and observing its transmission effects than a confirmation that the rate hike cycle has ended. As long as employment does not weaken significantly, energy risks persist, and investment in artificial intelligence continues to drive demand for equipment and electronic components, the Federal Reserve lacks the conditions to quickly ease policy.

The core contradiction of the US dollar index: interest rate differentials remain supportive, but directional signals are insufficient.

The US dollar index is facing three forces in the short term. First, both CPI and PPI are lower than expected, reducing the urgency for continuous interest rate hikes. Second, prices for upstream metals, electronic components, and services remain high, making it difficult for the Federal Reserve to quickly shift to easing. Third, the Middle East conflict has a dual impact on oil prices, inflation expectations, and safe-haven demand, potentially increasing demand for the dollar and also pushing up long-term inflation risks. Therefore, the area around 100.55 represents a support zone after the recent data shock, while the 101.32 to 101.47 range corresponds to the previous rebound high and densely traded area. If the index continues to stay near the Bollinger middle band, it means the market is still waiting for energy prices, the core personal consumption expenditure price index, and employment data to provide a clearer policy path. Currently, the US dollar index is not simply trading on "declining inflation," but rather assessing whether the rate of decline can offset cost channels and risk premiums.