Dollar Holds Gains as PPI Data Pushes Fed Rate Hike Odds Higher

The US Dollar (USD) held onto its gains on Friday, driven by faster-than-expected growth in the United States Producer Price Index (PPI) data for August. The US Dollar Index (DXY), which gauges the Greenback's value against six major currencies, traded marginally higher at around 99.12.

The Thursday release of the PPI report showed that headline producer inflation accelerated to 5.4% Year-on-Year (YoY) from 4.8% in July, while core PPI grew at a faster pace of 4.6% YoY compared to the previous reading of 4.3%. These figures prompted hawkish Federal Reserve bets, with the CME FedWatch tool showing that the odds of the Fed raising interest rates at the policy meeting next week increased to 72.4% from 61.2% seen before the data release.

Economists at TD Securities project that August inflation likely showed only modest further progress, with core CPI rising 2.3% on a y/y basis and headline inflation staying unchanged at 3.4% y/y. However, they caution that risks to their forecasts are skewed to the upside due to tariff-related uncertainty.

The US Dollar Index Technical Analysis suggests a bearish near-term bias, with price holding beneath the 20-period exponential moving average (EMA) at 99.27 and below the key 50% Fibonacci retracement at 99.72. On the topside, initial resistance is aligned with the 61.8% Fibonacci retracement near 99.24 and the 20-period EMA at 99.27.