United States Dollar Index holds onto gains above 99 ahead of US CPI data

The US Dollar Index (DXY) maintained its upward trajectory above the 99 mark in early trading on Friday, boosted by stronger-than-anticipated Producer Price Index (PPI) data released for August. As of the latest update, the DXY was trading at approximately 99.12. On Thursday, the PPI report revealed headline producer inflation surged to 5.4% Year-over-Year (YoY) from 4.8% in July, surpassing expectations of 5.3%.

The core PPI, excluding volatile food and energy prices, expanded at a faster pace of 4.6% YoY, aligning with forecasts. This unexpected data surge has fueled expectations of a more aggressive stance from the Federal Reserve (Fed). The CME FedWatch tool now indicates a 72.4% probability of a rate hike at the upcoming policy meeting, up from 61.2% prior to the data release.

Later today, market participants will closely monitor the US Consumer Price Index (CPI) figures for August, set to be released at 12:30 GMT. Economists at TD Securities anticipate a modest uptick in inflation, projecting core CPI to rise by 2.3% YoY, down 10 basis points from July, while headline inflation is expected to remain flat at 3.4% YoY.

However, they caution that "risks to our forecasts are skewed to the upside" due to their assumption of significant price declines in tariff-exposed goods categories, which introduces uncertainty regarding the near-term disinflation trajectory. In the daily chart, the Dollar Index Spot is currently at 99.13, with a bearish near-term bias as it remains below the 20-period exponential moving average (EMA) at 99.27 and under the key 50% Fibonacci retracement level at 99.72.

The Relative Strength Index (14) has rebounded towards the mid-40s, indicating decreasing downside momentum, yet it has not yet confirmed a decisive bullish reversal. On the upside, the primary resistance lies at the 61.8% Fibonacci retracement near 99.24 and the 20-period EMA at 99.27, with further obstacles at the 50% retracement at 99.72 and the 38.2% level at 100.21.

A decisive break above this zone would be necessary to challenge the 23.6% retracement at 100.81. Conversely, support is provided by the 78.6% retracement around 98.54, followed by the 100% Fibonacci anchor at 97.66. A breach below this support could signal a more pronounced bearish trend.