US Dollar Index (DXY) struggles below 99.00, two-week low as traders eye US inflation data

The US Dollar Index (DXY) has struggled to stay above 99.00, reaching a two-week low during the Asian trading session on Tuesday. This decline comes as traders weigh upcoming US inflation data, particularly the US Producer Price Index (PPI) and Consumer Price Index (CPI), which are set for release on Thursday and Friday, respectively.

The DXY's slide is further fueled by the surge of the Japanese Yen (JPY), which has added significant momentum to the recent pullback. The index, which tracks the Greenback against a basket of currencies, is currently trading around 98.80, down 0.10% for the day. Despite holding above a three-month low set in August, the market's focus remains on the upcoming CPI data, which could provide crucial clues about the Federal Reserve's policy path and influence the near-term trajectory for the US Dollar.

The recent better-than-expected US Nonfarm Payrolls (NFP) report had bolstered the case for a potential Fed rate hike at the September meeting, but analysts argue that the stronger jobs data, while supportive of the USD, is not enough to drive a sustained rally. Instead, markets will await firmer inflation evidence before considering a September hike with greater conviction.

The DXY remains below key technical levels, including the 200-day Exponential Moving Average at 99.52 and the 61.8% Fibonacci retracement band at 99.23. A break below these levels could signal further downside risk, while a bounce from the 61.8% retracement could provide a catalyst for renewed USD strength.