US Dollar Forecast: DXY Rebounds as Hot PPI Raises Doubts on Fed Cuts

US PPI Surprises to the Upside: Can the Fed Still Cut in September?

The US dollar regained ground Thursday, snapping a two-day losing streak, as a hotter-than-expected Producer Price Index (PPI) report for July challenged the recent dovish tilt in Federal Reserve rate expectations. The data showed a 0.9% month-over-month increase in wholesale inflation—well above the 0.2% consensus forecast—driven by rising services and goods costs.

At 15:47 GMT, the U.S. Dollar Index is trading 98.224, up 0.438 or 0.45%.

Fed Rate-Cut Bets Hold, but September’s Magnitude in Doubt

Despite the inflation spike, fed funds futures continue to price in a 93% chance of a 25 basis point rate cut at the Fed’s September 17 meeting, according to CME’s FedWatch tool. However, the PPI release all but eliminated any market speculation around a deeper 50 basis point move.

Treasury Secretary Scott Bessent’s recent suggestion of such a cut now appears unlikely. StoneX’s Matt Weller noted that the data makes it “hard to justify more than one or two cuts this year,” underscoring concerns over the Fed’s capacity for an aggressive easing cycle without further labor market deterioration.

Treasury Yields Edge Up on Sticky Inflation Risks

Short-dated Treasury yields climbed in reaction to the data, with the 2-year yield rising 4.3 basis points to 3.73%. The benchmark 10-year yield added 4.1 basis points to 4.281%. While consumer inflation earlier in the week suggested a modest easing, the PPI’s acceleration suggests underlying inflation pressures may still be brewing, potentially complicating the Fed’s path forward.

Jackson Hole Looms Large for Rate Clarity

Traders are now focused on the Federal Reserve’s annual Jackson Hole Symposium (August 21-23), where Chair Jerome Powell could use his speech to recalibrate expectations. Deutsche Bank analysts reminded markets that Powell has previously used this platform to telegraph key policy shifts. Any signal toward caution on inflation could temper market optimism for multiple cuts.

Dollar Index Pivots Around the 50-Day Moving Average

The U.S. Dollar Index (DXY) traded just above its 50-day moving average at 98.1, a level now serving as the key pivot for short-term price action. The index had slipped below this level earlier in the week but regained footing after the PPI release. Traders are watching to see if DXY can close convincingly above this average—a move that could open the door for broader bullish momentum.

Market Forecast: All Eyes on Powell at Jackson Hole

With price coiling around the 50-day, traders are looking to the Fed’s Jackson Hole Symposium (August 21–23) for direction. If Chair Powell leans dovish, the dollar could slip back below the 98.1 indicator and retest lower ranges.

A hawkish tone, however, could reinforce the 50-day as support and trigger upside extension. Until then, price action remains anchored to that moving average, which continues to set the tone.

More Information in our Economic Calendar.