DXY Eyes August Low as Inflation Data Looms

The US Dollar Index (DXY) dropped to nearly three-week low, around 98.70-98.65 area, on Wednesday, as sellers continued to dominate for the third consecutive day.

The index is now eyeing its August swing low of 98.50 ahead of the crucial US inflation data release, which will be closely watched by investors for cues on the US Federal Reserve's (Fed) policy path.

Economists at DBS argue that this week's Consumer Price Index (CPI) data will prove pivotal for the FOMC meeting next week, with markets still lacking a clear policy signal despite resilient economic activity.

The focus now lies squarely on inflation, as the past few prints have been benign, and increases in the transport component have proved surprisingly muted. Firm labour market data has kept Fed hike bets elevated at 60% for a September rate hike, but investors remain cautious due to the lack of decisive direction.