DXY: US dollar index set to rebound amid taper talk
- The US dollar index retreated after the latest US inflation data.
- The headline CPI and PPI were better than the median estimates.
- The Fed is expected to talk about tapering in September.
The US dollar index (DXY) has been in a tight range as investors reflect on the mixed US consumer and producer inflation data and hawkish Fed speak. The index is trading at $92.95, which is slightly below this week’s high of $93.15.
US inflation and Fed taper talk
The top catalyst for the DXY index this week was the US consumer inflation data. On Wednesday, data published by the Bureau of Labor Statistics (BLS) showed that the headline consumer price index rose by 5.4% in July. This was where it was in July and was the highest level since 2008.
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The core CPI declined slightly from 4.5% in July to 4.3% in June. Still, a closer look shows that the US inflation is easing. For one, the month-on-month numbers declined in July.
Meanwhile, the US dollar index also reacted to the strong producer price index (PPI) published on Thursday. The data showed that the core PPI rose by 1.0% on a month-over-month basis. This was slightly higher than the median estimate of 0.5%. It rose by 6.2% on a year-over-year basis. The headline PPI rose by 7.8% in July.
Further data showed that the US initial jobless claims softened to 375k last week from 387k in the previous week. In the same period, the continuing claims declined from 2.98m to 2.866 million.
Therefore, it is against this backdrop that several Federal Reserve members sounded hawkish this week. In an interview with the Financial Times on Thursday, Mary Daly said that the bank will consider tapering asset purchases by the end of the year.
The same sentiment was shared by Richard Kaplan, the Dallas Fed president. In a statement, he said that the Fed will likely unveil a plan in September. A survey by Reuters also showed that more analysts expect the bank to unveil its tapering plan in September.
US dollar index technical forecast
The four-hour chart shows that the US dollar index has retreated slightly recently. This retreat is notable considering that it happened after the index rose to a key resistance at $93.15. As such, it is part of the formation of the handle part of the cup and handle pattern.
The DXY also remains above the 25-day and 50-day moving averages, which is a bullish pattern. Therefore, there is a possibility that it will rebound amid the taper talk
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