The Dollar Index (DXY) was trading just above 99.00, up about a quarter of a percent, after peaking just short of 99.25 following 14:00 GMT. The move began around 12:30 GMT when headline PCE inflation printed at 3.7% year on year versus 3.6% consensus, but rate pricing has been moving the other way this month. September 16 hike odds are 40.14% against 59.86% for a hold, while October 28 is priced at 64.50% cumulative. The current 3.50% to 3.75% range carries zero probability of surviving to year-end, yet a second move to 4.00% to 4.25% by December 9 is priced at 8.13%, down from 24.13% on August 10; the “one hike” outcome sits at 91.87%. Further out, the 2027 path peaks at 74.50% for two increases in June, versus 86.71% a fortnight ago.
The prior low was driven by fiscal policy: DXY hit the 98.50 area last week, its weakest in more than three months, after the Treasury expanded buybacks of long-dated debt to temper borrowing costs, and today’s rebound retraced roughly half of that. Technically, spot remains below the 200-day EMA near 99.75 and a 50-day average just under 100.00, leaving around three quarters of a point of moving-average resistance. Near-term data include jobless claims at 12:30 GMT, seen at 208K versus 206K, then Chicago PMI at 13:45 GMT expected at 57 versus 57.6. Friday’s 14:00 GMT cluster combines remarks at the Wyoming symposium, final Michigan sentiment forecast at 51 alongside one-year inflation expectations with a 4.3% prior and five-year at 3.3%, plus the preliminary benchmark revision to nonfarm payrolls. Key levels include resistance at just under 99.25, then 99.75, with 100.00 and a late-June peak just above 101.75 beyond; support sits just under 99.00, then 98.50, with air below 98.00. The daily Stoch RSI is near 23.
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Technical and Fundamental Drivers Indicate Ongoing Downside
We suggest derivative traders prepare for continued downward pressure on the US Dollar Index (DXY) as it struggles to break past major technical resistance near 99.75. Despite a minor bounce to 99.00 following the headline PCE inflation print of 3.7%, the underlying rate hike momentum remains weak. Historically, when a currency fails to rally significantly on hotter-than-expected inflation data, it indicates that the market has already priced in the peak of the interest rate cycle.
The greenback’s recent drop to a three-month low of 98.50 was triggered by the Treasury’s expanded buyback program, a fiscal move aimed at lowering long-term borrowing costs. We point out that the U.S. national debt has now surpassed $35 trillion, forcing the government to rely heavily on short-term bill issuance which structurally dilutes the currency’s value. This liquidity-injecting intervention historically devalues a currency, meaning any short-term rallies should be treated as temporary relief rather than a structural trend reversal.
With September rate hike expectations hovering at just 40.14%, down from 50% earlier in August, the interest rate story is no longer a strong driver for dollar bulls. We recommend utilizing bear call spreads or buying near-the-money put options targeting the 98.50 support level. This approach limits risk while allowing us to capitalize on the descending 50-day and 200-day moving averages that are currently capping the index.
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Tactical Trading Considerations Ahead of High-Impact Events
Traders must stay highly alert on Friday when the Federal Reserve Chair speaks at the Jackson Hole symposium alongside the release of the crucial nonfarm payroll revisions. Historically, benchmark payroll revisions can adjust employment figures by hundreds of thousands of jobs, which will trigger massive intraday swings. We advise tightening stop-losses or temporarily reducing position sizes ahead of this high-impact macro window to avoid getting caught on the wrong side of sudden spikes.
