US Dollar stays flat after mixed inflation data

• US Dollar Index remains unchanged following the release of mixed inflation data.
• Inflation in the US declined to 2.5% on an annual basis in August.
• Annual core CPI remained steady at 3.2% in August.
• The market reaction includes a higher probability of a 25-basis-point cut by the Fed.

The US Dollar Index (DXY), a measure of the value of the USD against a basked of six other currencies, lost its ground after the release of mixed inflation data for August. Despite a decline in the overall inflation rate to 2.5% on an annual basis, the core Consumer Price Index (CPI) remained steady at 3.2%, indicating persistent inflationary pressures. This data has dampened expectations of a 50-basis-point interest rate cut by the Federal Reserve (Fed) in September, increasing the likelihood of a more modest 25-basis-point reduction.

Based on economic indicators, the US economy remains robust, surpassing expectations. While the market anticipates further monetary relaxation, it is essential to temper expectations. The current growth trajectory is unlikely to warrant such aggressive easing measures. It is crucial to adopt a balanced approach, acknowledging both the economy's strength and the need for cautious optimism in decision-making.

Daily digest market movers: DXY shrugs off weak sentiment data on the back of hawkish bets

• Annual US CPI inflation eased to 2.5% in August from 2.9% in July, marking the lowest level since April 2018.
• Annual core CPI, excluding volatile food and energy prices, remained unchanged at 3.2% in August, as expected.
• Monthly CPI increased 0.2%, while core CPI was up 0.3%, both above market expectations.
• As a reaction, the US Dollar is seen flat as traders reduced odds for a 50-basis-point rate cut by the Fed, now pricing in an 85% chance of a 25-basis-point cut.

Daily digest market movers: DXY shrugs off weak sentiment data on the back of hawkish bets

Technical analysis for the DXY index shows that indicators are currently in a negative territory but seem to have flattened. However, the index managed to regain the 20-day Simple Moving Average (SMA) at around 101.60 on Tuesday, which improved the short-term outlook.

The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are both flat in negative terrain, which suggests that there is no bearish threat. That being said, on Wednesday, the upside appeared to be limited, but buyers have more room to continue advancing.

Key support levels include 101.60, 101.30 and 101.00, while resistance levels include 101.80, 102.00 and 102.30.