US Dollar Index (DXY) eases below 98.00 as the dust of the US CPI settles

• The Dollar gives away previous gains as the impact from the strong US inflation figures wane.
• Hopes of high Fed rates for a longer time are likely to keep UD Dollar shorts limited.
• Investors will be looking at the US PPI data later today to confirm the inflationary trends.

The US Dollar is pulling back from the three-week high of 98.25, reached on Tuesday, following the release of hot US Consumer Price Index figures. The Greenback trims some losses on Wednesday's early European session, returning to levels below 98.00, but maintains its broader bullish trend intact.

On Tuesday, June's US CPI confirmed that the impact of higher tariffs on imports is starting to filter through the economy. The headline inflation accelerated to a 2.7% year-on-year rate from the previous 2.4% and the core CPI rose to a 2.9% yearly rate from 2.8% in May. Month-on-month consumer inflation grew by 0.3% and 0.2% respectively.

Hopes of high interest rates for a longer time are supporting the USD

These figures justify Fed Chairman Jerome Powell's call for caution in assessing the real impact of Trump's tariffs on prices and have prompted investors to trim their bets on interest rate cuts in the next months. This is likely to keep the US dollar's downside attempts limited.

Dallas Fed President Lorie Logan supported this view earlier on Wednesday, defending the need to keep interest rates at the current level for some time, to keep inflation at low levels amid the upside risks stemming from Trump's tariffs.

With this in mind, the focus today is on the US Producer Prices Index for confirmation of the higher inflationary trends. In this case, however, the market consensus anticipates a slight decline, which might contribute to improving market sentiment and would push the US Dollar lower.