DXY: US dollar index forecast as consumer prices surge

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Oct 13, 2021
  • The US dollar index retreated after the US published strong inflation data.
  • Consumer prices jumped by 5.4% in September after rising by 5.3% in August.
  • The index may keep falling in the near term.

The US dollar index (DXY) turned lower on Wednesday as investors reflected on the rising inflation in the United States. The index declined from a weekly high of $94.55 to a low of $94.20.

US consumer inflation rising

The jump in consumer inflation may not be transitory after all. That’s what the US inflation data published on Wednesday showed. According to the latest numbers by the Bureau of Labour Statistics (BLS), the headline consumer price index (CPI) rose by 5.4% from a year earlier. The core CPI, which excludes the volatile food and energy products, rose by 4.0%.

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There were several drivers for higher prices. First, energy prices have jumped sharply in the past few weeks, with the price of natural gas soaring to an all-time high. Crude oil prices have also risen to the highest level in about 7 years.

At the same time, the logistics delays being experienced around the world also contributed to higher prices. The cost of shipping has soared, pushing some retailers like Costco to charter their own ships. At the same time, higher cost of doing business has also pushed more sellers to hike their prices. For example, many retailers and restaurants have been forced to hike salaries. 

Inflation data is important for the US dollar index because it has an influence on the Federal Reserve. In most cases, the Fed tends to turn hawkish when inflation is rising and the unemployment rate is falling. Data published on Friday showed that the country’s unemployment rate declined from 5.1% in August to 4.6% in September.

The US will publish the latest producer price index (PPI) data on Thursday. The number is expected to show that the country’s PPI rose by 8.7% in September.

US dollar index forecast

dollar index

The daily chart shows that the dollar index has been under intense pressure lately. The index is trading at $94.20, which is along the ascending trendline shown in orange. This line connects the lowest levels since October 4. It is also slightly above the 23.6% Fibonacci retracement level and has moved below the 25-day moving average. 

Therefore, the DXY index will likely keep falling as bears target the next key support level at $93.90, which is along the 23.6% retracement level.

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