DXY slips as hot PPI stokes stagflation fears
- DXY slides to 97.60 after a hotter-than-expected producer price report fuels concerns over sticky inflation and slowing growth.
- January PPI rose 0.5% month-on-month, well above the 0.3% consensus, though analysts noted the overshoot was concentrated in trade services, a category that may not reflect true real-time price changes.
- Rising US-Iran tensions and fresh tariff uncertainty following the Supreme Court's IEEPA ruling are adding cross-currents to the broader risk outlook.
DXY fell about 0.2% on Friday, grinding back into 97.60 after a hotter-than-expected Producer Price Index (PPI) report amplified concerns that inflation is proving stickier than the Federal Reserve (Fed) would like, weighing on growth expectations and dragging the Greenback lower. The index has been grinding higher since bouncing off its February low near 95.60 in late January, recovering roughly 200 points in a series of higher lows, but price continues to stall each time it approaches the 98.00 area. Friday's sell-off added another failed test of that level, with a cluster of small-bodied candles and overlapping ranges over the past two weeks pointing to a market struggling to find direction.
The Bureau of Labor Statistics (BLS) reported that the PPI for final demand rose 0.5% in January, nearly double the 0.3% consensus forecast and following a downwardly revised 0.4% gain in December. Producer prices were also up 2.9% YoY. While much of the upside surprise came from trade services, a volatile category the BLS itself notes does not capture true price changes in real time, the broader message was clear: wholesale price pressures are not cooling as fast as markets had hoped. The print feeds directly into the Fed's preferred Personal Consumption Expenditures (PCE) price index, and is likely to reinforce the central bank's cautious stance after holding rates at 3.50% to 3.75% in January. Minutes from that meeting showed officials divided, with several participants discussing the possibility of rate hikes if inflation stays above target. Money markets have pushed the first fully priced rate cut out to July at the earliest.
Geopolitical risks are also in play. US-Iran nuclear talks in Geneva have produced mixed signals, with Washington reportedly dissatisfied with progress and President Trump warning of possible military action. Separately, Trump announced plans for new 15% global tariffs after the Supreme Court struck down his earlier emergency tariff regime. Despite these risk-off undertones, the DXY is on track for a roughly 0.6% monthly gain in February, its first positive month since October, snapping a three-month losing streak.
DXY daily chart
Technical Analysis:
In the daily chart, Dollar Index Spot trades at 97.63. The near-term bias is mildly bullish as price holds above the 50-day exponential moving average near 97.85 while remaining capped well below the 200-day exponential moving average around 99.50, keeping the broader trend subdued. The recent rebound from sub-97.00 levels aligns with a Stochastic recovery out of oversold territory into the high 70s, signaling improving upside momentum rather than exhaustion at current levels. This configuration points to a corrective advance within a still-muted medium-term backdrop, with buyers gradually regaining control but facing overhead supply on approach to the longer-term average.
Initial resistance emerges at the 98.00–98.20 area, where recent swing highs cluster ahead of the 98.80 region, which coincides with the prior consolidation zone and sits just beneath the 200-day average. A daily close above 98.80 would strengthen the bullish bias and open the way toward the psychological 99.50 region defined by the 200-day exponential moving average. On the downside, immediate support is seen around 97.40, guarding the more important 97.00 level that underpinned the latest bounce. A break below 97.00 would negate the upside bias and expose the next support zone near 96.40, where previous reaction lows would likely attract dip buyers.
In the weekly chart, Dollar Index Spot trades at 97.63. The near-term bias stays mildly bearish as price holds well below the 200-week exponential moving average near 100.70, confirming a broader downtrend structure. The recent series of lower weekly closes beneath this long-term average signals persistent selling pressure on rallies. Weekly stochastic has bounced from oversold territory but remains in the lower half of its range, indicating only a modest recovery in momentum that does not yet challenge the prevailing downside bias.
Initial resistance is located at last week’s high near 97.75, followed by the mid-range barrier at 98.50, where prior consolidation could cap rebounds. A sustained break above 98.50 would be needed to open the way toward the 100.00 region, aligning price closer to the 200-week EMA and softening the bearish outlook. On the downside, immediate support sits at the recent trough around 96.85, with a weekly close below this level confirming renewed downside extension toward the 95.50 area. The current configuration keeps the focus on selling into strength while price holds beneath the 98.50–100.00 resistance band.
In the monthly chart, Dollar Index Spot trades at 97.64. The near-term bias on this broader timeframe is mildly bearish, as price holds below the rising 200-month exponential moving average near the mid‑96 area after failing to sustain the 108.00 region earlier in the sequence. The stochastic oscillator remains depressed in the mid‑teens, signaling lingering downside momentum after a prolonged slide from overbought readings seen when the index was above 105.00, and suggesting that recovery attempts may struggle while momentum remains weak.
Initial resistance is located at the recent swing high around 99.70, where failure earlier in the sequence reinforced selling pressure, followed by the 101.50 zone and then 104.00, which align with prior closing clusters and would need to give way to ease the current downside bias. On the downside, immediate support is seen just beneath the market around 96.80, in line with the 200-month exponential moving average, with a monthly close below this level opening the way toward the 95.00 area and then the 93.50 region, where previous basing attempts emerged on this timeframe.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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