United States Dollar Index softens below 100.00 as softer PPI dampens Fed hike odds
- US Dollar Index declines to around 99.90 in Friday’s Asian session.
- The US PPI inflation was unchanged in July, reinforcing bets the Fed will refrain from hiking interest rates next month.
- Fed's Barkin said a rate hike is still an 'open question.’
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.90 in the Asian trading hours on Friday. The DXY weakens following cooler US inflation data. Traders brace for the release of the US July Retail Sales report later on Friday for fresh impetus.
Data released by the Bureau of Labor Statistics on Thursday showed that the US Producer Price Index (PPI) was unchanged in July, following a revised 0.1% decline in June. This figure came in below the market consensus of 0.2%.
The core PPI, which excludes food and energy, increased 0.2% MoM in July, softer than a 0.3% gain expected. On an annual basis, the headline PPI climbed 4.7% YoY in July, while the core PPI rose 4.2% YoY during the same period. This report has bolstered market expectations that the US Federal Reserve (Fed) could keep interest rates unchanged next month.
Markets are now pricing a 34.8% chance of a US rate hike at the September meeting, down from 40% immediately after the PPI data, according to the CME FedWatch Tool.
Elsewhere, the US Initial Jobless Claims rose to a seasonally adjusted 209,000 for the week ended August 8, compared to 200,000 in the previous reading and above the 204,000 estimate.
Fed Bank of Richmond President Tom Barkin said that it remains an "open question" whether further monetary tightening will be needed to bring inflation back to the target level, or if inflation is already on a downward path toward the goal.
Dollar downside opens up as Fed hike bets fade but oil risks linger
Rabobank’s Jane Foley observes that “Fed rate hike speculation has recently suffered a setback on the back of recent US data releases,” a shift that “opens the prospect of further slippage for the greenback.” However, she cautions that this emerging downside bias for the Dollar “could still be thrown off course if oil prices spike higher again,” with renewed energy market stress potentially reasserting support for the currency’s safe haven and US energy exporter premium.
Barkin keeps rate hike question open as inflation path remains uncertain
Barkin delivers a moderately more impactful speech than usual, with a 6.1/10 FXS Speechtracker score compared to the established baseline of 5.6/10, but the tone is notably balanced between concern and cautious optimism. The key remark that it is “still an open question” whether the FED needs to raise rates to restore 2% inflation, versus already being on a path down, underscores genuine policy uncertainty and keeps the door open to further tightening even as Barkin highlights arguments for easing price pressures and acknowledges embedded inflation risks. Overall, the speech leans slightly hawkish in policy optionality but is tempered by recognition of model uncertainty, vulnerable labor conditions, and a reluctance to commit to forward guidance.
The FXS Fed Sentiment Index fell by 0.96 points to 136.96, signaling a modest pullback in perceived hawkishness despite remaining firmly above the neutral 100 mark. This configuration indicates that, while the FED is still seen as operating in hawkish territory, markets interpret Barkin’s emphasis on uncertainty, slowing headline inflation, and the absence of explicit rate-hike signaling as a mild softening in stance relative to prior communications captured by the FXS Speechtracker.
Technical Analysis: US Dollar Index maintains neutral tone in the near term
In the daily chart, Dollar Index Spot sits just above the 100-day moving average (MA) but remains capped well beneath the 20-day Bollinger middle band, leaving the near-term tone neutral rather than decisively bullish. The 14-day Relative Strength Index near 42 stays in a modestly negative mid-range, hinting at fading upside momentum without yet signaling oversold conditions.
On the topside, initial resistance is aligned with the Bollinger middle band at 100.40, ahead of the Bollinger upper band near 101.80, where stronger supply could emerge. On the downside, immediate support is seen at the 100-day MA at 99.75, with further protection coming from the lower Bollinger band around 99.00; a daily close below this latter band would open the door to a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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