US Dollar Index Eases Amid Disinflation Fears and Reduced Hike Odds

US Dollar Index (DXY) has eased alongside lower US Treasury yields after Fed Governor Waller expressed his preference for keeping interest rates unchanged in September if disinflation persists. This sentiment was reflected in a decline of September Fed hike odds to around 50%.

Wallers' comments suggested that the recent disinflation trend could be given 'a chance', with expectations of a reasonable Consumer Price Index (CPI) print and the current policy setting potentially bringing inflation back towards 2%. He also appeared relatively sanguine about some recent inflation drivers, noting that much of the tariff impact has already passed through while higher energy prices have yet to spill meaningfully into broader prices.

However, Waller kept the door to a hike open, citing policy as only slightly restrictive and suggesting that renewed inflation acceleration could still warrant tightening. The burden of proof now rests on incoming data, particularly this week's payrolls and next week's CPI and PPI prints, which may ultimately prove decisive for the September decision.

The DXY is currently trading around 99 levels with mild bullish momentum on its daily chart remaining intact, but two-way trades are likely within a broader bearish trend channel. Key support levels include 98.60/70 (50% fibo retracement of 2026 low to high) and 98 (61.8% fibo), while resistance is at 99.40 (21DMA, 38.2% fibo) and 99.75 (100 DMA).