Dollar Steadies Ahead of CPI Report

The US dollar steadied on Friday after a strong payroll report boosted expectations of a September rate hike from the Federal Reserve. The US Dollar Index (DXY) briefly climbed to around 99.20, but its gains were limited by softer wage growth and only modest repricing in Fed funds futures.

Markets now look to this week's Consumer Price Index (CPI) report for direction, with an upside surprise potentially reviving dollar strength and a softer reading keeping trading choppy. The implied probability of a September hike rose to around 65% from 55%, before easing back towards 62%.

Technical analysis suggests that the DXY is hovering near key resistance levels, including the 21-day moving average (DMA) at 99.40 and the 38.2% Fibonacci level. Support lies at 98.60-98.70, aligning with the 50% Fibonacci retracement of the 2026 low-to-high move.

With market expectations for a rate hike in this middle ground ahead of a September meeting, DXY volatility can jump by over 1.2% upon the CPI data release. Historically, an upside inflation surprise has pushed the dollar past its immediate resistance at 99.40, targeting the 100-day moving average at 99.75.

As the Relative Strength Index (RSI) is flat, indicating neutral momentum, traders are advised to favor two-way range trading until the CPI data drops. Tight stop-losses are essential here, especially with solid support lying further down at the 98.00 mark.