• US PPI and CPI reports will dictate Federal Reserve monetary policy and interest rate expectations.
• Strong US jobs data has traders pricing in over a 60% chance of a rate hike.
• Reuters poll indicates that the Fed will hold interest rates steady through year-end, defying market hike expectations.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground for the fourth consecutive day and trading around 98.70 during Asian hours on Thursday.

Market participants are closely watching the upcoming US Producer Price Index data due to be released on Thursday and Consumer Price Index data on Friday, as these inflation reports could provide vital hints regarding the Federal Reserve’s (Fed) monetary policy outlook ahead of its meeting next week.

Following recent stronger US jobs data, traders have increased their bets on an interest rate hike, with the CME FedWatch Tool pricing in over 60% odds for a rate increase at the central bank’s upcoming policy meeting.

However, according to a majority of economists in a Reuters poll, the Federal Reserve will hold its interest rate steady at its September 15-16 meeting and for the rest of this year, once again defying market expectations for a series of hikes.

Economic data have mostly come in strong in recent weeks, and several economists noted that the August Consumer Price Index data will be crucial for solidifying their outlook on future interest rates.

Bond outflows deepen as higher yields sap demand

Strategists at BNY observe that investor risk appetite has cooled, noting that “iFlow Mood narrowed at a faster pace as investors reduced core sovereign bond exposure more aggressively than global equities.” They add that “higher global yields are increasingly weighing on bond flows,” underscoring how rising rate pressures are prompting a more pronounced pullback from core sovereign debt relative to stock markets.

Technical Analysis: DXY holds below moving averages

In the daily chart, Dollar Index Spot trades at 98.70, keeping a bearish near-term tone as it holds below both the nine-day and 50-day Exponential Moving Averages (EMAs). The short-term EMA remains beneath the longer EMA, while the 14-day Relative Strength Index (14) at about 37 stays in bearish territory, suggesting ongoing downside pressure despite some stabilization in the FXS Fed Sentiment Index around 125.72.

On the topside, initial resistance is aligned with the nine-day EMA, with a more significant cap at the 50-day EMA, which together outline the band the index must reclaim to alleviate the current bearish bias. In the absence of identifiable technical supports from the provided dataset, traders may look to recent lows and psychological round numbers below 98.75 for potential demand zones, while any recovery attempts are likely to struggle as long as price trades under the clustered EMAs.