DXY Rebounds as PPI Miss Tempers 50 bp Fed Cut Odds : Analysis for EUR/USD, GBP/USD, USD/CAD, USD/JPY

Producer Prices Fall, But Dollar Holds Firm

The U.S. Dollar Index (DXY) climbed to 97.778 on Wednesday after U.S. producer prices unexpectedly declined 0.1% in August. Despite the miss versus a 0.3% rise expected, the dollar gained ground as traders reassessed how aggressively the Federal Reserve may cut rates later this month. The index continues to rebound from last week’s low at 97.253, showing that near-term dollar selling pressure may be waning.

Rate Cut Still Expected, But Not Deep

Annual PPI came in at 2.6%, below the 3.3% consensus. Even so, fed funds futures still price in a 90% probability of a 25 bp cut, with only a 10% chance of a 50 bp move. Markets appear reluctant to press the dollar lower ahead of Thursday’s Consumer Price Index release, which will offer a clearer read on inflation trends. Until then, DXY price action suggests buyers are stepping back in as it trades just below resistance at 97.903.

Euro Slips as Dollar Recovers, Despite French Political Turmoil

EUR/USD pulled back from recent highs to 1.1704, losing ground as DXY firmed. Earlier in the week, the euro briefly strengthened after France’s government collapsed following a no-confidence vote. The market reaction has been muted, with EUR/USD failing to maintain momentum above 1.1751. With price backing off recent highs, the pair looks vulnerable to further downside if U.S. inflation data surprises to the upside.

Sterling Holds Above 1.35 but Faces Political and Fiscal Headwinds

GBP/USD remains near 1.3535, holding onto recent gains after recovering from early-September lows at 1.3333. While UK inflation remains sticky, and the Bank of England is expected to hold rates, political risk is creeping back in. Traders remain focused on the UK’s fiscal position ahead of November’s budget. Sterling is steady for now but may struggle to extend gains without a catalyst.

USD/JPY Tracks U.S. Rate Expectations, Not Japanese Politics

Despite political turbulence in Japan following Prime Minister Ishiba’s resignation, USD/JPY is holding above 147.370. While speculation around a potential policy shift under new leadership exists, the pair remains more sensitive to U.S. rate expectations. Friday’s weak payrolls data initially weighed on the dollar, but the pair has since regained lost ground.

USD/CAD Steady Near 1.3865 as Oil Fails to Shift Sentiment

USD/CAD remains elevated around 1.3865, with the pair consolidating near its recent highs. Even as crude oil prices firmed following fresh geopolitical tensions, the Canadian dollar failed to capitalize. Traders remain cautious due to uncertainty surrounding U.S.-Canada trade relations, particularly with the CUSMA review scheduled for next year. Canadian bond yields have risen, but the loonie is still under pressure from weak domestic data and increasing bearish positioning by institutions.

Market Forecast: DXY Bounce Limited Below 50-Day MA

DXY’s rebound toward 97.778 reflects short-term stabilization, but the broader trend remains under pressure. The index continues to trade below its 50-day moving average, with sellers defending resistance near 98.326. Without a material upside surprise in Thursday’s CPI data, the bounce appears corrective rather than a directional shift. A failure to reclaim the 50-day MA keeps the focus on support at 97.253, and below that, July’s low near 96.374. For now, dollar strength is capped, and bearish bias holds unless the inflation outlook materially improves.

More Information in our Economic Calendar.