The US Dollar Index (DXY), which tracks the greenback against a basket of currencies, is struggling to build on the previous day’s modest recovery gains and oscillates in a narrow range during the Asian session on Thursday. The index is currently positioned just below the mid-98.00 areas, virtually unchanged on the day, as traders opt to wait for US consumer price inflation numbers before placing new bets.
The crucial US Consumer Price Index (CPI) is due later during the North American session and will be examined for signals on the future policy path of the Federal Reserve (Fed). This, in turn, will play a major role in determining the next stage of the dollar’s directional movement. Heading into major data risks, a dovish Fed outlook is keeping US dollar bulls on the defensive and acting as a headwind to the index.
Despite the Fed’s dovish outlook, traders were anticipating the possibility of two additional interest rate cuts in 2026 amid clear signs of weakness in the US labor market. In addition, there is speculation that the new Fed Chairman will be dovish and cut interest rates further amid political pressures. In fact, US President Donald Trump said on Wednesday that the next Fed chair will be someone who believes in cutting interest rates a lot.
However, Federal Reserve Governor Christopher Waller — one of the five finalists to succeed Jerome Powell — said he would certainly stress the importance of central bank independence to President Trump. This in turn provides some support to the US dollar. However, the broader fundamental backdrop appears slanted in favor of the bears and suggests that the path of least resistance for the US dollar is to the downside.
Even from a technical perspective, the recent breakdown and overnight failure near the 200-day simple moving average (SMA) validates the near-term negative outlook for the dollar. Hence, any subsequent move higher may still be viewed as a selling opportunity, warranting some caution before taking positions to extend the US dollar’s recovery from its lowest level since early October.
Economic indicator
Consumer Price Index (annual)
Inflationary or deflationary trends are measured by periodically collecting the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). Consumer Price Index (CPI) data is compiled on a monthly basis and released by US Department of Labor Statistics. The annual reading compares commodity prices in the reference month with the same month of the previous year. The Consumer Price Index is a key indicator for measuring inflation and changes in purchasing trends. In general, a high reading is considered bullish for the US Dollar (USD), while a low reading is considered bearish.
Read more.
Next release:
Thursday 18 December 2025 at 13:30
repetition:
monthly
consensus:
3.1%
former:
3%
source:
US Bureau of Labor Statistics
The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to this mandate, inflation should be around 2% year-on-year, and it has become the weakest pillar of the central bank’s guidance since the world suffered from the pandemic, which extends to the present day. Price pressures continue to rise amid supply chain issues and bottlenecks, with the Consumer Price Index remaining at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain a strong stance for the foreseeable future.
