US Dollar Index (DXY) flat lines below mid-98.00s ahead of US CPI

Finance

US Dollar Index (DXY) flat lines below mid-98.00s ahead of US CPI

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to build on the previous days modest recovery gains and oscillates in a narrow band during the Asian session on Thursday. The index is currently placed just below mid-98.00s, nearly unchanged for the day, as traders opt to wait for the US consumer inflation figures before placing fresh bets.

The crucial US Consumer Price Index (CPI) is due for release later during the North American session and will be scrutinized for cues about the Federal Reserves (Fed) future policy path. This, in turn, will play a key role in determining the next leg of a directional move for the buck. Heading into the key data risk, dovish Fed expectations keep the USD bulls on the defensive and act as a headwind for the index.

Despite the Feds cautious outlook, traders have been pricing in the possibility of two more interest rate cuts in 2026 amid visible signs of a softening US labor market. Adding to this, speculations that the new Fed chair will be dovish and slash interest rates further amid political pressure. In fact, US President Donald Trump said on Wednesday that the next Fed chief will be someone who believes in lower interest rates by a lot.

However, Federal Reserve Governor Christopher Waller – one of five finalists to potentially succeed Jerome Powell – said that he will absolutely emphasize the importance of central bank independence to President Trump. This, in turn, offers some support to the USD. Nevertheless, the broader fundamental backdrop seems tilted in favor of bears and suggests that the path of least resistance for the USD is to the downside.

Even from a technical perspective, the recent breakdown and the overnight failure near the very important 200-day Simple Moving Average (SMA) validate the near-term negative outlook for the Greenback. Hence, any subsequent move up might still be seen as a selling opportunity, warranting some caution before positioning for an extension of the USDs recovery from its lowest level since early October.