The US Dollar Index (DXY) jumped to a five-day high on Tuesday, trading around 98.38 and up approximately 0.45% on the day, following the release of stronger-than-expected US inflation data for April [1]. The Bureau of Labor Statistics reported that headline Consumer Price Index (CPI) rose 0.6% month-over-month, after a 0.9% increase in March, matching market expectations. However, annual inflation accelerated to 3.8% from 3.3%, surpassing forecasts of 3.7% [1]. Core CPI, which excludes food and energy, increased 0.4% MoM, up from 0.2% in March and above the expected 0.3%. On an annual basis, core inflation climbed to 2.8% from 2.6%, also exceeding the forecast of 2.7% [1].
The inflation surge was largely attributed to higher energy prices amid supply disruptions around the Strait of Hormuz. This, combined with ongoing uncertainty regarding US-Iran peace negotiations and doubts about the durability of the current ceasefire, supported safe-haven demand for the US Dollar [1].
Market reaction was swift, with US Treasury yields moving sharply higher as traders scaled back expectations for near-term Federal Reserve rate cuts. According to the CME FedWatch Tool, the probability of a rate hike at the September meeting stands near 20%, rising to around 40% for the December meeting [1].
Technical analysis indicates that the Dollar Index Spot trades at 98.39, below key moving averages (100-day SMA at 98.46, 200-day SMA at 98.53, and 50-day SMA at 99.00), suggesting rallies may encounter resistance near these levels. Momentum remains subdued, with the Relative Strength Index (14) just below the midline and MACD fractionally negative, hinting at a fragile recovery tone. Initial resistance is seen at the 100-day SMA near 98.46, followed by the 200-day SMA at 98.53, while notable support lies at 97.83 [1].
Looking ahead, traders are expected to closely monitor developments in US-Iran negotiations and upcoming US economic data releases, including the Producer Price Index (PPI) report on Wednesday and Retail Sales data on Thursday [1].
CONCLUSION
Stronger-than-expected US inflation data has reinforced a hawkish outlook for the Federal Reserve, driving the US Dollar Index higher and prompting a rise in Treasury yields. Market participants are now less optimistic about near-term rate cuts, with increased probabilities for rate hikes later in the year. Attention will remain focused on geopolitical developments and upcoming economic data releases for further market direction.