The US dollar began the week on a positive note; however, it has struggled to maintain its upward trajectory as investors eagerly await the release of the US Consumer Price Index (CPI) inflation data. Scheduled for release today at 13:30 GMT, the report is expected to provide critical insights into the country's inflationary trends. The US Dollar Index (DXY) is currently trading at a resistance level of 108.49, with immediate support levels identified at 107.50 and 107.00.
The core CPI, which excludes volatile food and energy prices, is anticipated to rise by 0.3% for the month, bringing the annual rate to 3.1%, slightly down from December’s 3.2%. This figure remains above the Federal Reserve's target, reflecting persistent inflationary pressures. Despite these challenges, the overall strength of the US economy continues to support the dollar.
Investors are keenly focused on the CPI data, as it is expected to show a 0.3% increase in headline inflation for January compared to the previous month. This will maintain the annual rate at 2.9%, consistent with December's reading. The inflation rate peaked in 2022 but has since shown signs of easing, offering some reassurance to market participants.
The Federal Reserve's strategy remains one of cautious observation as it assesses the impact of President Donald Trump's economic policies, including his plans for reciprocal tariffs executed through executive action. These policies have contributed to inflation concerns, and their effects are being closely monitored before any further interest rate decisions are made.
The US administration's tariff strategies have played a significant role in underpinning the US dollar, particularly as markets brace for today's inflation report. The potential for increased tariffs has stoked inflation fears, adding an element of uncertainty to the economic outlook.
As traders analyze the evolving economic landscape, resistance levels remain pivotal. Beyond the current level of 108.49, further resistance is noted at 109.52, with the psychological barrier of 110.00 looming on the horizon. These technical indicators will be key as market participants react to upcoming data releases.