The US Dollar Index (DXY) is facing selling pressure during the European trading session on Wednesday, dropping 0.1% to near 99.90 as investors turn cautious ahead of the United States Consumer Price Index (CPI) data for May, scheduled for release at 12:30 GMT [1]. The Greenback was the weakest against the Canadian Dollar, declining by 0.12%, and also fell against the Euro (-0.09%) and British Pound (-0.05%) [1]. The Euro, meanwhile, has ticked up for the third consecutive day against the US Dollar but remains capped below the previous support zone at 1.1575, with two-month lows in the 1.1500 area still in sight [2].
Market sentiment has been impacted by reports of US strikes on Iran’s defence and radar systems and retaliatory attacks by Tehran targeting US forces in Bahrain, adding pressure to a fragile ceasefire. Despite these geopolitical tensions, the market reaction has been contained, with the US Dollar and Oil prices holding a moderately bearish tone [2]. Investors are closely watching the US CPI release, which is expected to show inflationary pressures accelerating to three-year highs. Estimates suggest headline inflation grew faster by 4.2% year-on-year from April’s 3.8%, while core CPI rose at a faster pace of 2.9% versus 2.8% previously. Month-on-month headline and core CPI are estimated to have risen by 0.5% and 0.3%, respectively [1].
Signs of accelerating inflation could prompt hawkish bets on the Federal Reserve’s monetary policy. The CME FedWatch tool indicates that the odds of the Fed delivering at least one interest rate hike this year are almost 68% [1]. Following a strong Nonfarm Payrolls (NFP) report for May, market conditions are set for potential monetary policy tightening by the Fed [2]. Vitalii Bulynin, CEO at Versus Trade, commented, "The US Dollar is no longer simply a safe-haven trade as it is becoming an inflation trade again. If oil stays elevated and US data continues to show its strength, the market may have to expect the Fed keeping interest rates higher for longer, supporting the Greenback" [2].
Technical analysis shows the Dollar Index Spot trades lower at around 99.90 but maintains a bullish outlook as it holds above the 20-day exponential moving average (EMA) at 99.35, with the Relative Strength Index (RSI) around 62 in bullish territory [1]. For the Euro, EUR/USD remains vulnerable below 1.1575, with session lows near 1.1530 and key support at 1.1505. Momentum is mildly negative, with the RSI just below 50 and the MACD indicator in shallow positive territory, suggesting downside pressure is easing but not strong enough to reverse the bearish structure [2].
CONCLUSION
The US Dollar is under moderate selling pressure ahead of the US CPI release, with investors cautious amid geopolitical tensions and expectations of rising inflation. While the Euro has shown slight gains, it remains near two-month lows, reflecting ongoing bearish sentiment. The outcome of the CPI data and subsequent Fed policy decisions are likely to drive further market moves.