US Dollar Index holds near 100.00 as hot PPI and Fed decision dominate
- US Dollar Index firms ahead of the FOMC rate decision and updated dot plot as wholesale inflation surprises to the upside.
- February PPI rose 0.7% MoM, more than double the 0.3% consensus, with headline wholesale prices up 3.4% YoY; core PPI also beat at 3.9% YoY.
- The Fed is widely expected to hold rates, with focus shifting to the Summary of Economic Projections and Chair Powell's press conference.
DXY edged up about 0.3% on Wednesday, trading around 99.85 in a session dominated by the hotter-than-expected Producer Price Index (PPI) print ahead of Wednesday's Federal Reserve (Fed) decision. The index has rallied sharply from early-March lows close to 97.00, reclaiming the 100.00 handle last week before pulling back slightly into a tight range of small-bodied candles just below that round number.
Wednesday morning's PPI data showed wholesale prices rose 0.7% MoM in February, more than double the 0.3% forecast, with the YoY figure jumping to 3.4% against expectations of 2.9%. Core PPI, excluding food and energy, came in at 3.9% YoY versus 3.7% expected. Crucially, this data largely predates the escalation of the Iran conflict, meaning the energy-driven price pressures from surging crude (West Texas Intermediate is trading near $98 per barrel) have yet to fully filter through. The report reinforces the case for the Fed to hold rates at 3.50% to 3.75% this afternoon and may tilt Chair Jerome Powell's messaging in a more hawkish direction.
Markets are now pricing just one cut for 2026, with the first move not expected until September at the earliest. The updated Summary of Economic Projections (SEP) and dot plot will be closely watched for any upward revision to the inflation outlook or a shift in the median rate path. Powell's press conference, likely one of his last before stepping down in May, will be the main event for traders looking for guidance on how the Fed weighs the stagflationary risks from elevated energy prices against signs of labour market softening.
DXY daily chart
Technical Analysis
In the daily chart, Dollar Index Spot trades at 99.83. The near-term bias is mildly bullish as price holds above the rising 50-day exponential moving average near 98.50 and challenges the 200-day exponential moving average around 99.05. The recent close above both averages confirms an improving trend structure after consolidating below the longer-term average through most of the period. Stochastic remains elevated in the 80s, signaling strong upside momentum, though its plateau warns that follow-through may slow if buyers fail to extend gains decisively.
Initial support emerges at the 99.00 area, where the 200-day average aligns with the latest breakout zone, followed by the 50-day average near 98.50, which protects the prior consolidation band. A break below 98.50 would weaken the bullish case and expose deeper pullback risk toward 98.00. On the upside, immediate resistance sits at the psychological 100.00 handle, just above the recent 100.50 high, where overbought stochastic conditions could invite profit-taking. A daily close above 100.50 would open the way for a more extended bullish phase, reinforcing the current upward bias.
(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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