US Dollar Price Forecast: DXY Stays Weak as ECB Hike Looms and Inflation Risks Rise; EUR/USD and GBP/USD in Focus

The U.S. dollar stays relatively stable due to elevated treasury yields, fueled by escalating energy expenses. The 10-year yield surged to a 2023 peak, reflecting mounting global inflation concerns. However, the dollar's value remains unchanged, signifying that investors are hesitant to commit long positions prior to the upcoming U.S. inflation data and the Federal Open Market Committee's (FOMC) meeting.

Key economic indicators to watch include the Producer Price Index (PPI) released today and the Consumer Price Index (CPI) on Friday.

The Federal Reserve's decision to raise interest rates at their upcoming meeting, scheduled for Wednesday, carries a 60% probability. This decision is based on robust labor market data and heightened energy shock. The energy crisis could also heighten inflation worries among investors. Meanwhile, market analysts may become more cautious in their assessments if the data proves weaker, potentially leading to a shift in the hawkish stance.

The European Central Bank (ECB) is also set to increase interest rates by 25 basis points today, bringing the deposit rate to 2.50%. The consensus among market participants is that the ECB will not raise rates again this year. Euro zone inflation stood at 3.3% in August, and energy price pressures are mounting, with Deutsche Bank anticipating a potential December rate hike.

The British pound (GBP) maintains a subdued trend, with the Bank of England adopting a more cautious approach compared to its peers. A considerable consensus suggests that the Bank of England will hold off on raising rates through September 17, with 57% of economists polled expecting this outcome.

The fundamental bias leans towards a neutral-to-bearish outlook for the U.S. dollar (DXY), moderately bullish for the euro (EUR), and neutral for the British pound (GBP). On the 2-hour chart, the U.S. dollar index (USDX) is currently hovering around 98.74 and is situated below both moving averages. The price has not managed to surpass 98.90 multiple times, suggesting that sellers are actively defending rebounds, preventing the formation of a clear trend reversal.

Observing the 98.60 support zone, a break below this level would push the price lower to 98.46 and 98.28. If the bulls manage to hold price action, the first resistance level at 98.90 would be significant. Should the bulls dominate price action, 99.05 and 99.21 would become important resistance zones to watch. The Relative Strength Index (RSI) remains in a range that suggests weak price action, further supporting the bearish sentiment until the USDX successfully challenges and surpasses the 99.05 level. Price should then move down to 98.60.