U.S. Dollar Forecast: DXY Retreats As Inflation Rate Drops To 8.5%

Key Insights

• Traders rushed to sell the American currency as Inflation Rate declined to the 8.5% level. 
• Riskier assets like stocks and cryptos enjoyed strong support. 
• DXY has a good chance to settle below the 105 level, which will be bullish for riskier assets.

Traders Sell U.S. Dollar After Inflation Reports

U.S. dollar found itself under strong pressure after the U.S. released inflation reports. Inflation Rate declined from 9.1% in June to 8.5% in July, compared to analyst consensus of 8.7%. Core Inflation Rate remained unchanged at 5.9%, while analysts expected that it would grow to 6.1%.

While the American currency has been moving lower since the start of the week, markets were not prepared to see a strong decline in inflation. As a result, traders rushed to sell the U.S. dollar.

Currently, the U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, is down by more than 1%. Not surprisingly, Treasury yields have also moved lower.

Riskier Assets And Gold Benefit From Weaker Dollar

Weak dollar and lower Treasury yields provided material support to gold, which managed to get back above the $1800 level. Silver is also moving higher.

The rally in the U.S. stock market is set to continue as S&P 500 futures are up by about 1.5% in premarket trading. Stock traders bet that the Fed will not raise the rate by 75 bps at the next meeting and will limit itself with a 50 bps hike.

Tech stocks, who have delivered strong earnings reports, like Trade Desk, are moving higher in premarket trading. Big tech names like Apple and Microsoft are also gaining ground. The risk-sensitive cryptocurrencies like Bitcoin or Ethereum enjoy strong support.

Stocks, cryptos, and gold may get even more support in the upcoming hours in case the U.S. Dollar Index manages to settle below the 105 level. The first reaction to U.S. inflation reports indicates that many traders were unprepared for softer inflation numbers, so the current sell-off has a decent chance to continue.

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