The US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, is trading slightly lower after posting modest gains in the previous session. During Asian trading hours on Wednesday, the index is hovering around 99.10, with investors turning cautious ahead of the US Retail Sales and Producer Price Index (PPI) data due later in the North American session.
The Greenback could find support after the latest US Consumer Price Index (CPI) figures largely met market expectations, strengthening the view that the Federal Reserve (Fed) is likely to keep interest rates unchanged this month, even as underlying inflation pressures show signs of cooling.
US CPI rose by 0.3% month-on-month in December 2025, in line with forecasts, while headline inflation held steady at 2.7% year-on-year. Core CPI, which excludes food and energy, increased by 0.2% during the month—below expectations—while annual core inflation remained at 2.6%, marking a four-year low.
The CPI report offered clearer evidence of easing inflation after earlier data had been distorted by shutdown-related effects. Still, the Dollar continues to draw support from a resilient labor market, highlighted by last Friday’s strong Nonfarm Payrolls report, a decline in the Unemployment Rate, and a solid four-week average of ADP Employment Change.
However, any upside for the US Dollar may be limited by growing concerns over the Federal Reserve’s independence. US federal prosecutors have reportedly threatened to indict Fed Chair Jerome Powell over congressional remarks related to a building renovation project, sparking fresh questions about the central bank’s autonomy. At the same time, the Trump administration has intensified pressure on the Fed to cut interest rates, with Powell calling the move a “pretext” aimed at influencing monetary policy.
Market sentiment also remains fragile amid rising geopolitical tensions. Reuters reported on Wednesday, citing the US-based HRANA rights group, that the death toll from ongoing protests in Iran has climbed to 2,571. Meanwhile, US President Donald Trump has publicly urged Iranians to continue demonstrating, saying that support is on the way.
