The US Dollar strengthened after hotter US Consumer Price Index (CPI) data pushed up US Treasury yields and increased expectations of a Federal Reserve rate rise. Attention has now shifted to the upcoming US Producer Price Index (PPI) release.
Higher yields at both the short and long end have helped support the Dollar, while the CPI breakdown has not pointed to broad inflation pressure. The Dollar may stay supported on dips if markets continue to price a more hawkish Fed response, with oil prices still elevated and inflation risks tilted upwards.
Dollar Reaction To Cpi Surprise
The Dollar index (DXY) rose and was last seen at 98.30, with bearish momentum on the daily chart easing as RSI increased. The outlook is described as having two-way risks.
Technical levels cited include resistance at 98.70 (38.2% Fibonacci) and 99 (50-day moving average). Support levels are 98.10 (50% Fibonacci retracement of the 2026 low-to-high move) and 97.50/60 (double bottom and 61.8% Fibonacci retracement of the 2026 low-to-high move).
The next scheduled data point is PPI at 8:30pm SGT.
We’ve seen the US Dollar strengthen following the latest Consumer Price Index report, which came in at 3.6% year-over-year, beating forecasts. This immediately shifted market thinking, with the probability of a June Fed rate hike jumping from 20% to over 45%. The focus for today, May 13th, now turns entirely to the Producer Price Index data for another clue.
Trading Setup Around Ppi
Given this backdrop, any dips in the Dollar Index (DXY) are likely to find buyers. This view is supported by a more aggressive Fed outlook and persistently high energy costs, with WTI crude oil holding firm above $85 a barrel. These factors keep inflation risks tilted to the upside, underpinning the dollar’s value for now.
However, a runaway dollar rally isn’t a certainty, creating an environment ripe for options traders. With the DXY currently at 98.30, the two-way risk suggests strategies like straddles or strangles could be effective to play potential volatility around key data releases. This is especially true as the inflation, while higher, is not yet showing signs of a broad, uncontrolled breakout like we saw back in 2022.
For those with a directional bias, the key levels are clear for setting up trades on DXY futures or options. We are watching resistance near 98.70, a level that would invalidate the bearish sentiment that built up after the Fed’s dovish talk in late 2025. On the downside, the 98.10 support level will be the first test of this renewed dollar strength.
