US Dollar Holds Near $100 as PPI Looms After Soft CPI

Traders turn to Thursday's US producer price report after July CPI cooled to 3.4 percent, with the dollar index testing $100 support.

The dollar steadied near $100 on Thursday as traders awaited US producer price data that could decide whether the Federal Reserve pauses in September, after July CPI cooled to 3.4 percent.

"A soft print should produce a bullish steepening of the yield curve and see the dollar soften, particularly against the procyclical currencies," said Chris Turner, global head of markets at ING.

The dollar index traded at $100.03, above the 100-day EMA at $99.91 but below the 50-day EMA at $100.29. EUR/USD slipped to $1.1520 after being rejected at the descending trendline near $1.1569, while GBP/USD fell to $1.3483, breaking below its $1.3515 pivot. UK GDP expanded 0.4 percent in Q2, following 0.6 percent in Q1.

A hotter-than-expected PPI reading would revive the dollar and pressure EUR/USD and GBP/USD further, while a soft print would reinforce the bearish dollar trend from the CPI release. The Fed's next decision comes Sept. 17-18, with markets pricing roughly even odds on a hike before Wednesday's data.

US consumer prices rose 0.1 percent in July on a seasonally adjusted basis, matching consensus and rebounding from a 0.4 percent drop in June, with the annual rate cooling to 3.4 percent from 3.5 percent. Core CPI, which strips out food and energy, rose 0.2 percent on the month and 2.5 percent year-on-year, both matching forecasts and down from a flat June reading and a 2.6 percent annual pace. Shelter costs, up 0.1 percent, accounted for roughly two-thirds of the monthly gain, while energy fell 1.5 percent and food rose 0.1 percent.

The benign print swung the odds of a Fed hold at the September meeting to 60 percent, up from 40 percent before the release. No Fed speakers are scheduled before the data, leaving the PPI report, a further round of jobs data, and the Jackson Hole symposium to shape expectations.

DXY Recovery Hinges on $100.29 Break

The dollar index is attempting to climb above the rising trendline and horizontal support at $99.42 that has repeatedly held. Price has cleared the 100-day EMA at $99.91, but the 50-day EMA at $100.29 still caps gains, with RSI near 44 recovering from weaker territory. Resistance sits at $100.06, $100.29, and $100.82, while support lies at $99.42, $98.76, and $98.18. The index has been locked in a 99.40-100 range, and Turner said a downside break would require the CPI to undershoot.

EUR/USD and GBP/USD Test Key Support

EUR/USD, which reached a two-day high of $1.1563 after the CPI release, reversed to trade at $1.1520 on the four-hour chart, rejected again at the descending trendline near $1.1569. The pair now heads toward the 50 EMA at $1.1525, with the 100 EMA at $1.1499 the next dynamic support. On the daily chart, EUR/USD holds a mildly bullish bias above the broken downtrend line at $1.1514 and the channel top at $1.1510, with moving averages clustered near $1.1466. Turner said EUR/USD should be able to challenge last week's high at $1.1580 if the CPI came in soft, describing that as "about the extent of a move priced into one-day straddle options." ING's base case holds EUR/USD below $1.1580 absent a CPI undershoot, with any sustained move through that level requiring either a decisive Fed pivot signal or a material de-escalation in Middle East energy risk.

GBP/USD broke below its $1.3515 pivot and trendline support, trading at $1.3483 with momentum shifting lower. The pair remains above the 50 EMA at $1.3474 and the 100 EMA at $1.3443, with RSI near 46. Resistance is at $1.3515, $1.3559, and $1.3601, while support sits at $1.3474, with stronger support at $1.3437, $1.3401, and $1.3343. Sterling's Q2 GDP expansion of 0.4 percent, following 0.6 percent in Q1, gives the Bank of England room to focus on price stability even as energy costs keep inflation risks elevated.

The PPI release carries outsized weight because it is the last major inflation input before the Fed's Sept. 17-18 meeting. A hot producer reading would push the dollar toward $100.82 and drag EUR/USD below $1.1500 toward $1.1456, while a soft print would open a test of the $1.1580 resistance in the euro and the $1.3515 pivot in cable. European natural gas above 60 euros per megawatt-hour, sustained by unresolved Gulf tensions, keeps the euro's upside capped even as eurozone activity data surprises to the upside.

This article is for informational purposes only and does not constitute investment advice.