US Dollar Forecast: Sideways Chop in Play Until the CPI Numbers Drop

USD Index Early Action

The dollar’s got a bit of a spring in its step this morning, holding firm above the 50-day moving average at 98.200. We dipped to 97.945 last week — right in the middle of that short-term retracement zone — but buyers seem to have defended that floor.

Now, the market’s eyeing 98.683 as the pivot. I think if we get a clean push through there, we could see the greenback make a run toward that heavier resistance band up near 99.17–99.83.

At 14:51 GMT, the U.S. Dollar Index is trading 98.638, up 0.374 or +0.38%.

Market Drivers

Quite frankly, it’s all about tomorrow’s U.S. inflation print and whether Washington and Beijing shake hands on a tariff extension. Traders are already squaring positions — you can feel it in how modest today’s moves are. A hotter CPI would raise the bar for the Fed to cut rates in September, which tends to give the dollar a tailwind. But if inflation cools, especially with the labor market softening, the odds tilt back toward a cut — and that could weigh on the DXY.

The market’s currently pricing a 90% chance of a cut next month and about 58 bps of easing by year-end. That’s basically two quarter-point trims and maybe a third if things get ugly. From a dollar standpoint, rate cut bets are usually headwinds — unless the rest of the world’s easing faster, which right now is exactly what the BoE and RBA are doing.

Technical Picture

From where I sit, we’re still in a consolidation range, working off some of the excess from earlier in the summer. Support’s sitting around 97.85–97.95 — buyers have shown up there twice now. The ceiling is that 98.68–99.17 zone. Breakouts tend to happen on a catalyst, and tomorrow’s CPI fits the bill. It doesn’t take a lot of imagination to see the greenback jumping a half point higher if the print surprises hawkish.

Why It Matters for the Dollar

If inflation comes in strong, that likely pushes Treasury yields up and supports the greenback — especially with European data pointing soft and the RBA leaning dovish. On the flip side, a weak print drops yields, rate cut odds spike, and the DXY could slip back under the 50-day. Trade headlines could add to that swing — confirmation of a U.S.-China tariff pause would likely be dollar-positive in the short run, as it removes a risk premium hanging over U.S. growth.

Forward Outlook

More likely than not, the DXY chops sideways into CPI. I think traders will look at pullbacks toward 98.00 as potential buying opportunities if global peers keep easing. That being said, one weak inflation print could shift the tone quickly. We’ll see how that plays out — but for now, the greenback’s holding its ground and waiting for the next cue.

More Information in our Economic Calendar.