The US Dollar Index climbed for a fourth day, breaking past technical resistance to approach the 99 level. The rally was fueled by surprisingly strong inflation figures, which have led traders to abandon bets on Federal Reserve interest rate cuts and begin pricing in the possibility of further hikes.
The U.S. dollar surged toward the 99 mark for the first time in seven weeks, extending its rally to a fourth day after hotter-than-expected inflation data roiled interest rate expectations.
"The dollar's safe-haven bid from geopolitical risk was temporary, but its reaction to inflation is fundamental," said David Scutt, a market analyst at Forex.com. "This print forces the market to re-evaluate the Fed's path, making rate hikes a tangible risk again."
The Dollar Index (DXY) climbed as high as 98.85, breaking decisively above the 98.50-98.65 resistance zone that had capped previous advances. The move was mirrored in the bond market, where the 10-year Treasury yield jumped 12 basis points to 4.62%. In currency markets, the euro fell 0.8% to 1.0750 against the dollar, while the Australian dollar, a proxy for risk appetite, slid 1.2% to 0.7150.
The dollar's renewed strength puts pressure on global equities and commodities priced in the currency, tightening financial conditions worldwide. With traders now pricing in a greater than 40 percent chance of a Fed rate hike by year-end, according to CME FedWatch Tool data, the upcoming U.S. retail sales report will be critical to gauge whether consumer demand can withstand higher prices and borrowing costs.
The rally represents a sharp reversal from the technical weakness that had characterized the dollar's trading for weeks. Prior to the inflation report, the DXY was coiling within a descending triangle and its correlation with rising oil prices had collapsed from over 0.90 to below 0.40, suggesting its appeal as an energy security proxy was waning.
However, the latest consumer price index data shifted the narrative entirely. The report showed core inflation accelerating, prompting investors to unwind bets on Fed easing and reposition for a more hawkish central bank. This dynamic overshadowed ongoing geopolitical tensions in the Middle East and a leadership transition at the Federal Reserve, which had previously been seen as key market drivers.
The dollar's advance comes ahead of a crucial meeting between U.S. President Donald Trump and Chinese President Xi Jinping. While the talks could introduce fresh volatility, the market's primary focus has now squarely returned to U.S. monetary policy and the domestic inflation outlook.
From a technical standpoint, with the 98.65 resistance level now cleared, dollar bulls are eyeing the 99.35 and 99.70 levels next. A sustained break above the psychological 100 mark would be needed to confirm a longer-term trend reversal. Immediate support is now seen at the former resistance level around 98.50.
This article is for informational purposes only and does not constitute investment advice.
