US Dollar Forecast: DXY Slips as Inflation Data Becomes Key Market Driver

Dollar Index Edges Lower Near Support Ahead of Key CPI Report

The U.S. Dollar Index (DXY) is trading slightly lower at mid-session Wednesday, down 0.11% to 98.857, as the recent rally pauses near a key support zone. Traders remain cautious with the government shutdown freezing economic data flow, leaving Friday’s delayed CPI report as the next major input for direction.

Dollar Stalls at Support Zone After Three-Day Rally

The DXY has so far traded between 99.139 and 98.836 during the session, retreating after a brief test above the upper edge of the support zone at 98.797–98.714. This area remains critical; a breach of the 98.714 Fibonacci level could expose the index to the 50% retracement at 98.238 and the 50-day moving average at 98.078 — the latter having contained last week’s decline. Upside remains open to 99.563, but without a near-term bullish catalyst, price action is likely to remain contained.

Steady Yields Reflect Pre-CPI Caution

U.S. Treasury yields are flatlining as traders position ahead of Friday’s inflation data. The benchmark 10-year yield is holding near 3.974%, while the 2-year and 30-year yields are unchanged at 3.457% and 4.549%, respectively. With all other economic reports suspended, the CPI release will be the sole driver of rate expectations ahead of the Fed’s October 29 meeting.

Fed funds futures show a 97.3% probability of a 25-basis-point cut, down slightly from 99.4% the previous day. Analysts suggest a softer inflation reading would give the Fed room to ease more aggressively, while a stronger result could slow that path.

Sterling Weakens, Yen Recovers on Fiscal Signals

UK inflation data fell 0.4% to $1.3318 after UK inflation data underwhelmed at 3.8%, reinforcing expectations of a potential December rate cut by the Bank of England. Meanwhile, the yen edged higher to 151.85 against the dollar following confirmation that Japan’s new Prime Minister Sanae Takaichi will pursue a large stimulus package. Traders are watching for coordinated policy action with the Bank of Japan, whose next meeting is set for October 30.

Market Forecast: Dollar Likely to Hold Range Into CPI Release

With the DXY holding above the 98.714 threshold at mid-session and no fresh data to drive direction, the index is likely to remain rangebound. Traders will look to Friday’s CPI as the next volatility trigger. A stronger reading could support a move toward 99.563, while a downside break below 98.714 may expose weaker levels. Until then, the 98.714–99.139 band is expected to contain price action.

More Information in our Economic Calendar.