US Dollar roars on back of CPI and makes gains again


  • The Greenback recovers all losses from earlier this week.
  • With only second-tier data at hand, a weekly positive close looks inevitable. 
  • The US Dollar Index looks back on track toward heading to 107.

The US Dollar (USD) has been showcasing its resilience on Thursday after one component of the monthly headline inflation gauge ticked up against all odds. Inflation fears got reignited again, triggering a bond sell-off. US yields soared, fueling the Greenback rally against most major peers. Where the US Dollar Index is trading at the moment, it looks like this week’s weakness was just a small decoupling, and more US Dollar strength is to be factored in.

On the data front this Friday, there is not much that could turn this ship around. No Federal Reserve speakers are scheduled. With the Import/Export Price Index and the University of Michigan (ISM) Sentiment Index, no real market moving catalysts are present. 

Daily digest: US Dollar jumps around

  • At 12:30 GMT, the Import-Export Price Index for September will be released: Export Prices on a monthly basis are expected to head from 1.3% to 0.5%. The yearly component was at -5.5% and is expected to head to -4.0%. The Import Prices on a monthly basis are set to stay steady at 0.5%. The Yearly component is expected to head from -3% to -1.4%.
  • At 14:00 GMT the University of Michigan (ISM) will release its Sentiment Index and Consumer inflation expectations. The Sentiment Index is expected to head from 68.1 to 67.4. The Inflation expectation is expected to remain steady near 2.8%.
  • Equities are not dealing well with the current shift in sentiment and are sliding lower: The Hang Seng is the biggest loser, down over 2%. European equities are retreating as well, though less than 1%. US equity futures are flat and clueless concerning direction for now. 
  • The CME Group FedWatch Tool shows that markets are pricing in a 90.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
  • The benchmark 10-year US Treasury yield soared to 4.66%, even briefly testing 4.69%. The surprise uptick in headline inflation reshuffled the bond market into higher rates again.  

US Dollar Index technical analysis: Flirting with another weekly gain

The US Dollar is playing tricks on investors and traders. After the US Dollar Index (DXY) briefly snapped its weekly winning streak, it snapped as well a very important technical ascending trendline that was supporting price action since July. After the surprise uptick in headline monthly inflation, it looks like the yield story is back in play and the US Dollar Index is set to restart its winning streak after a small hiatus. 

The DXY opened above 106 and should at least be able to make a new high for this week, above 106.60. On the topside, 107.19 is important to reach if the DXY can get a daily close above that level. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level. 

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.