Dollar Strengthens on Higher Inflation Expectations

The US dollar has strengthened following the release of hotter-than-expected inflation data from July's PCE Index. This has led to increased expectations for a more hawkish stance from the Federal Reserve, providing fresh support for the greenback.

The dollar index broke above its 200-day moving average (DMA) on Wednesday, with a close above 98.99 generating an initial positive signal. However, this requires further upside action to be confirmed and open up the possibility of reaching pivotal barriers at 99.50/65 zone.

Despite technical indicators remaining bearishly aligned on the daily chart, fundamentals may be more supportive of the dollar's rise. Elevated inflation rates and a stronger US economy compared to other major economies suggest that the Fed may maintain restrictive monetary policy for some time.

Markets are now awaiting the speech of Fed Chief Warsh at the Jackson Hole Symposium, which will provide further details on the central bank's monetary policy path.