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The US dollar is navigating a mix of economic and political pressures. Softer inflation data has lifted hopes of interest rate cuts, but uncertainty around the Federal Reserve’s independence and upcoming economic releases means the outlook remains finely balanced.
Cooling PPI fuels Fed cut bets
The US dollar found stability during Asian trading hours, supported by softer inflation data and growing anticipation of rate cuts from the Federal Reserve.
As of 08:47 GMT, the US Dollar Index (DXY) was at 97.831, showing an increase of 0.147 points or 0.15%.
This marked a third straight session of gains, following earlier weakness this month. The turning point came after the Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand slipped 0.1% in August, compared with a downwardly revised 0.7% rise in July.
The softer print strengthened expectations of policy easing, with markets now viewing a 25-basis-point cut at the Fed’s 16-17 September meeting as highly likely.
Futures markets are even assigning close to a 9% probability to a larger 50-basis-point cut, underlining the dovish sentiment.
Still, traders remain cautious ahead of today’s US Consumer Price Index (CPI) release. Any upside surprise could temper expectations for deeper monetary easing and reverse recent dollar strength.
Political turbulence challenges Fed independence
Alongside economic data, political manoeuvres in Washington are injecting uncertainty into the Fed outlook.
The Trump administration is seeking to dismiss Federal Reserve Governor Lisa Cook, despite a court ruling temporarily blocking the move.
The White House’s push to reshape the central bank’s leadership before the September policy meeting has raised concerns about political interference.
Meanwhile, Trump-backed nominee Stephen Miran cleared the Senate Banking Committee and is edging closer to confirmation, though it remains unclear if the process will conclude before the upcoming decision.
Even partial politicisation of the Fed could undermine confidence in its independence, potentially weighing on long-term dollar sentiment and market stability.
Technical analysis
The Dollar Index is trading at 97.83 (+0.15%), but it remains in a broader downtrend from February’s 2025 peak of 108.39.
Picture: Dollar Index steady near 97.83, consolidating between 96.00 support and 99.00 resistance on the VT Markets app.
After touching a yearly low of 95.97 in July, the index has recovered modestly yet still struggles to regain the 100 threshold – evidence of ongoing selling pressure.
Short-term moving averages (5, 10, and 30) are flat, signalling indecision, while the MACD hovers near zero, pointing to subdued momentum.
Key support lies at 96.00, with a break lower exposing July’s trough. On the upside, resistance is located at 99.00 and 101.00 – levels that bulls need to reclaim to shift sentiment decisively.
Cautious forecast
In the near term, the Dollar Index is likely to trade within a narrow 97.50–98.00 range as markets digest incoming inflation figures and policy signals from the Fed.
A stronger-than-expected CPI release could push the index towards 98.30, while dovish rhetoric or political headwinds from Washington may cap gains quickly.
Looking further ahead, the Fed’s policy stance and the Trump administration’s continued pressure on central bank governance will remain the key drivers.
One or two rate cuts by year-end – if managed without unsettling forward guidance – could keep the dollar steady near present levels.
However, intensified political interference or deeper disinflation risks might send the index back towards 96.00 in the final quarter.
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