US Dollar Forecast: PPI Becomes the Next Test as EUR/USD and GBP/USD Lose Momentum

What to Know

• Softer US consumer inflation has reduced pressure for additional Federal Reserve tightening, putting greater focus on the upcoming US Producer Price Index release.
• Headline US CPI increased by only 0.1% month on month, while annual inflation slowed to 3.4%.
• A softer PPI reading could strengthen expectations that the Federal Reserve will pause, while firmer producer inflation could revive a more hawkish September scenario.
• The US Dollar Index is trading near 100.03 after recovering from trendline and horizontal support at 99.42.
• DXY has moved above the 100 day EMA at 99.91, but still faces resistance around the 50 day EMA near 100.29.
• EUR/USD is trading near 1.1520 after being rejected near descending trendline resistance at 1.1569.
• GBP/USD is trading near 1.3483 after slipping below the 1.3515 pivot, placing focus on support around 1.3474 to 1.3437.
• UK GDP expanded by 0.4% in the second quarter after growth of 0.6% in the first quarter, giving sterling a domestic data point to absorb.

Dollar Traders Turn From CPI to PPI

The US dollar is entering a critical data window as currency traders reassess Federal Reserve policy expectations following softer US consumer inflation. The latest CPI figures showed headline inflation rising by only 0.1% month on month, while annual inflation eased to 3.4%. That combination has reduced immediate pressure for additional tightening and has made the upcoming Producer Price Index release the next major test for dollar sentiment.

For FX markets, the distinction between consumer inflation and producer inflation matters because PPI can offer an early signal about pricing pressure moving through supply chains. If producer prices remain subdued, market participants may become more confident that inflation is easing enough for the Federal Reserve to remain on hold. If producer inflation proves more persistent, however, traders may revisit the possibility that policymakers keep a more hawkish stance into September.

The dollar’s reaction is therefore likely to depend not only on the headline PPI figure, but also on whether the data confirm or challenge the softer message delivered by CPI. A weaker number could reinforce expectations of a longer pause from the Fed. A stronger number could revive concerns that pipeline inflation remains sticky, which may support the dollar if yields and policy expectations move in its favor.

Fed Expectations Remain the Core FX Driver

The softer CPI print has shifted the balance of risks for the Federal Reserve, but it has not fully removed inflation concerns from the market conversation. Policymakers continue to face the challenge of deciding whether inflation is slowing sustainably or merely pausing before another round of pressure emerges. That is why the producer price data has taken on outsized importance for short term dollar direction.

For the dollar, the September policy outlook remains central. Currency markets tend to price relative policy paths, not just isolated inflation releases. If the Fed appears more likely to pause while other central banks remain cautious, the dollar can lose some of its yield appeal. If fresh inflation data push traders toward a more hawkish Fed scenario, the dollar may find renewed support, especially against currencies facing weaker domestic demand or more uncertain central bank guidance.

This makes the current setup highly sensitive to incoming data. The dollar has already attempted to recover technically, but confirmation from macroeconomic figures would likely be needed for a stronger move. Without that confirmation, recoveries may remain vulnerable near established resistance zones.

DXY Technical Outlook: Recovery Needs a Break Above 100.29

The US Dollar Index is currently trading around 100.03, attempting to build on a recovery from trendline and horizontal support near 99.42. That level has acted as repeated support, making it a key reference point for technical traders. The index has also climbed above the 100 day EMA at 99.91, which suggests buyers have started to defend the lower end of the recent range.

Even so, the recovery is not yet fully confirmed. The 50 day EMA near 100.29 remains an important resistance area, and the index still needs to clear that zone to strengthen the case for a broader rebound. Recent candles indicate some buying pressure, but the dollar has not yet broken decisively above the resistance cluster that could attract more momentum driven demand.

The RSI is around 44, recovering from weaker territory but still below 50. That reading suggests improving momentum, though not yet a strong bullish shift. Resistance levels are clustered near 100.06, 100.29, and 100.82. Support is visible around 99.42, followed by 98.76 and 98.18.

For now, the technical picture remains conditional. As long as the index holds above the rising trendline support near 99.42, some chart watchers may view the recovery attempt as intact. A sustained move above 100.29 would strengthen the case for a test of 100.82. Failure to hold above 99.42 would weaken the structure and could shift attention back toward lower support zones.

EUR/USD Outlook: Euro Rejected Near 1.1569

EUR/USD is trading around 1.1520 on the 4 hour chart after another rejection near the descending trendline at 1.1569. That rejection has placed renewed focus on the 1.1500 support area, with the 50 EMA at 1.1525 and the 100 EMA at 1.1499 acting as nearby dynamic levels. The latest candles show a loss of upside momentum, while RSI has moved down toward 42.

The euro’s broader backdrop remains mixed. The European Central Bank has been in a holding pattern after leaving policy unchanged in July. At the same time, there has been some stabilization in eurozone manufacturing activity, but lingering stress linked to energy costs and weak household demand continues to weigh on the outlook.

For EUR/USD, the policy gap between the Federal Reserve and the ECB remains a major driver. Softer US inflation can narrow that gap if traders believe the Fed is moving closer to a pause. However, the euro still needs a stronger domestic argument or a decisive technical break to regain upward momentum. Immediate resistance sits at 1.1569, followed by 1.1621 and 1.1674. Key support levels are located near 1.1500 and 1.1456.

Technical traders may continue to view the pair cautiously while it trades below the descending trendline. A break above 1.1569 would bring the bullish scenario back into focus. If EUR/USD falls below 1.1500, attention may shift quickly toward 1.1456 as the next active downside level.

GBP/USD Outlook: Sterling Slips Below 1.3515 Pivot

GBP/USD is trading near 1.3483 after breaking below the 1.3515 pivot area and the trendline that had supported the recent move. Although the pair remains above the 50 EMA at 1.3474 and the 100 EMA at 1.3443, the loss of the pivot has weakened the near term recovery structure. Momentum has shifted to the downside, leaving sterling vulnerable unless buyers reclaim higher ground.

The RSI is around 46 after losing bullish pressure, following rejection from the 1.3515 to 1.3540 area. Resistance now appears at 1.3515, 1.3559, and 1.3601. On the downside, initial support is seen at 1.3474, with stronger levels around 1.3437, 1.3401, and 1.3343. The 1.3437 to 1.3474 zone is therefore the main area traders are watching if selling pressure continues.

Sterling also has a fresh domestic catalyst from UK growth data. The economy expanded by 0.4% in the second quarter after growth of 0.6% in the first quarter. The figures suggest that the UK economy maintained expansion despite elevated energy costs and geopolitical tensions. For the Bank of England, that backdrop complicates the policy picture.

Stronger activity can give policymakers more room to focus on price stability, but inflation risks have not disappeared. Energy costs remain a potential source of renewed pressure, even as inflation begins to fall. That mix leaves GBP/USD exposed to both UK macro expectations and the dollar’s response to US inflation data.

What Could Move FX Markets Next?

The immediate FX focus is the US Producer Price Index. If PPI comes in soft, traders may increase confidence in a longer Federal Reserve pause, potentially weighing on the dollar and offering EUR/USD and GBP/USD room to stabilize. If PPI is stronger, the dollar could regain momentum as markets reassess the risk of a more hawkish September policy path.

Technically, the dollar needs confirmation above 100.29 to extend its rebound, while EUR/USD must recover 1.1569 to repair its short term structure. GBP/USD needs to reclaim 1.3515 to restore a more constructive tone. Until those levels break, traders may remain cautious and focus on whether support zones hold under renewed pressure.

The current environment is therefore a blend of macro uncertainty and technical compression. Inflation data are shaping the policy outlook, while chart levels are defining the immediate risk zones. That combination could keep volatility elevated as markets move from CPI relief toward the next inflation test.

Frequently Asked Questions (FAQs)

Why is the US Producer Price Index important for the dollar?

The Producer Price Index matters because it can show whether inflation pressure is building at the production level. If producer inflation is soft, traders may expect the Federal Reserve to remain on hold. If it is firm, the dollar may gain support from renewed hawkish policy expectations.

What did the latest US CPI data show?

Headline US CPI increased by only 0.1% month on month, while annual inflation slowed to 3.4%. Those figures reduced pressure for additional Federal Reserve tightening and shifted attention to the next inflation release.

What level does DXY need to break for a stronger recovery?

The US Dollar Index needs to clear resistance near the 50 day EMA at 100.29. A sustained move above that level could open the way toward 100.82, while failure to hold above 99.42 would weaken the recovery attempt.

Where is key support for the US Dollar Index?

Key support for DXY is near 99.42, where trendline and horizontal support have repeatedly attracted attention. Additional support levels are located near 98.76 and 98.18.

Why is EUR/USD under pressure?

EUR/USD is under pressure after being rejected near descending trendline resistance at 1.1569. The pair is now trading near 1.1520, with traders watching the 1.1500 area as an important support zone.

What would improve the EUR/USD technical outlook?

A break above 1.1569 would improve the EUR/USD technical outlook and bring the bullish scenario back into play. Until then, some chart watchers may continue to view the pair cautiously beneath the descending trendline.

Why has GBP/USD weakened?

GBP/USD has weakened after slipping below the 1.3515 pivot and losing support from its recent trendline. The pair is now focused on the 1.3474 to 1.3437 support zone.

How did the latest UK GDP data affect sterling?

UK GDP expanded by 0.4% in the second quarter after growth of 0.6% in the first quarter. The data offered evidence of sustained expansion, but it also makes the Bank of England policy outlook more complex because inflation risks remain relevant.

What is the main risk for FX traders now?

The main risk is that US PPI materially differs from the softer CPI signal. A weaker reading could support expectations for a Fed pause, while a stronger reading could revive dollar demand by making a more hawkish September scenario more likely.

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