The US dollar index remained strong in early Asian trading on Friday, last trading around 99.12, extending the previous day's rebound. The previously released US August producer price index significantly exceeded market expectations, prompting investors to reassess US inflationary pressures and the Federal Reserve's future policy path. With market focus shifting to the upcoming US August consumer price index, the dollar is currently at a crucial directional juncture. Data released by the U.S. Bureau of Labor Statistics showed that the U.S. Producer Price Index (PPI) rose 5.4% year-on-year in August, a significant acceleration from the revised 4.8% in July and higher than the market expectation of 5.3%. The core PPI, excluding food and energy, rose 4.6% year-on-year, in line with market expectations, but further higher than the previous value of 4.3%. On a month-on-month basis, the overall PPI rose 0.4%, and the core PPI rose 0.2%. The renewed acceleration of inflation on the U.S. production side is the most direct fundamental catalyst for the current rebound in the U.S. dollar. Following the release of the PPI data, the market quickly adjusted its assessment of the Federal Reserve's interest rate path. CME FedWatch data shows that the market now expects the probability of a Fed rate hike next week to rise to approximately 72.4%, significantly higher than the 61.2% before the data release. This means that investors are reducing their previous confidence in a rapid cooling of U.S. inflation, thus restoring some of the dollar's short-term interest rate advantage. However, the PPI cannot completely determine the Fed's policy direction. For U.S. monetary policy, changes in consumer prices remain a more significant indicator. Therefore, the market is currently awaiting the August CPI data. If core inflation continues to show strong resilience, expectations for further tightening by the Federal Reserve may intensify, and the dollar index is likely to continue testing the 100 level. Conversely, if CPI falls short of expectations, the recent surge in bets on interest rate hikes may subside, and the dollar's rebound may be suppressed. The market previously anticipated that the overall US CPI year-on-year growth rate in August would remain around 3.4%, while the core CPI year-on-year growth rate might decline slightly. Whether US inflation data can continue to move towards the 2% policy target will be a crucial factor determining the short-term direction of the dollar. Especially against the backdrop of a recent sharp rise in international oil prices, energy prices have once again become a significant uncertainty factor in the US inflation outlook. With crude oil prices breaking through $100, the potential transmission of energy costs to the US economy is receiving more attention. Rising oil prices not only directly affect gasoline and energy prices but may also be further transmitted to the prices of goods and services through transportation, logistics, and production costs. If energy prices remain high, market concerns about a resurgence of US inflation may intensify, thus limiting the Federal Reserve's room for policy easing. This also explains why the dollar has recently received significant support after the release of the PPI. Market trading logic has shifted somewhat from the previous pattern of "declining inflation - looser policies - pressure on the dollar" to "rising energy prices - increased inflation risks - tighter policies - support for the dollar." If this transmission chain continues to strengthen, the dollar index may remain relatively strong in the short term. However, the dollar's current rise still faces certain limitations. Significant divergence in US economic data, particularly the coexistence of a cooling job market and inflationary pressures, could force the Federal Reserve to face greater policy trade-offs between controlling inflation and stabilizing the economy. Furthermore, the dollar has already entered a post-adjustment rebound phase; if market bulls fail to push the dollar index through key technical resistance, some short-term funds may take profits again. Looking at the performance of major non-US currencies, the European Central Bank's recent further interest rate hikes and hawkish signals have provided some policy support for the euro. Rising European energy prices have also increased inflationary pressures in the Eurozone, potentially prompting the ECB to maintain a tighter policy for a longer period. Therefore, if US CPI is lower than expected, and the ECB continues its hawkish stance, expectations for the US-EU interest rate differential may change, thus limiting further gains in the dollar index. Market sentiment is currently clearly biased towards awaiting data confirmation. The PPI has signaled a renewed rise in inflationary pressures, but investors still need further confirmation from the CPI. If the CPI and PPI move in the same direction, the foundation for the dollar's rebound will be more solid; if the CPI is significantly lower than market expectations, the expectation of interest rate hikes driven by the PPI may cool rapidly, and the dollar may return to its previous weak trajectory. Therefore, it is crucial to focus on the synchronized changes in the US August CPI, core CPI, US Treasury yields, and the Fed's interest rate expectations. Meanwhile, whether international oil prices can continue to remain above $100 will also affect future US inflation expectations. The dollar has entered a critical phase where "inflation data determines interest rates, and interest rates determine direction." From a daily chart perspective, the dollar index is currently trading around 99.12. Although it has rebounded recently, it is still in a recovery phase after the previous adjustment. The index is currently still suppressed by the 20-period EMA around 99.27 and is below the 50% Fibonacci retracement level around 99.72, so the short-term trend has not yet fully turned into a strong bullish trend. The RSI has risen back to the 40 area, indicating that the previous downward momentum has weakened, but it is still insufficient to confirm a trend reversal. The first resistance level to watch is the 99.24-99.27 area. A decisive break above this level would target 99.72. A break above 99.72 would place the next resistance around 100.21, with stronger resistance at 100.81. On the downside, 98.54 is a key support level. A break below this level could see the dollar index move towards 97.66. Looking at the 4-hour chart, the dollar index has recently formed a rebound, with the 99.20-99.30 area being a crucial zone for short-term bulls. If US CPI is higher than expected and pushes US Treasury yields higher, the dollar index could break through 99.27 and move towards 99.72. A firm hold above 99.72 would significantly strengthen the short-term rebound. Conversely, if CPI is lower than expected and the dollar index falls below 99.00 again, the short-term rebound may face profit-taking pressure and retest the support around 98.54. Overall, the 4-hour chart is still in the stage of choosing a direction during the rebound. The reaction of the US dollar and US Treasury yields after the CPI release will be the main trigger for a breakout or pullback. Editor's Summary: The unexpectedly strong US PPI has significantly altered short-term interest rate market pricing, restoring support to the US dollar index. However, whether this rebound can continue depends on confirmation from CPI data. If US inflation remains resilient, expectations of a tighter Fed policy may strengthen further, potentially pushing the dollar index towards 99.72 and 100.21. Conversely, a significant slowdown in CPI and a decline in interest rate hike expectations could put renewed pressure on the dollar. In the short term, 99.27 is a crucial level for the dollar to break upwards, while 98.54 is a key support level. Going forward, close attention should be paid to the interplay between inflation, oil prices, US Treasury yields, and Fed policy expectations.