US Dollar recovers after hot CPI on the back of rising yields

• The US Dollar is getting traction, with the DXY rising to weekly highs.
• US headline CPI from September came in at 3.7% YoY, beating expectations. The core measure decelerated to 4.1% as expected.
• The hot CPI boosted US yields, which are showing sharp increases.

The US Dollar (USD), measured by the DXY US Dollar Index, trades with nearly 0.50% gains driven by rising hawkish bets on the Federal Reserve (Fed) after the release of September’s Consumer Price Index (CPI) data from the US.

The United States economy is running hot, and the slightly higher-than-expected inflation reading reminds investors that the Fed is still data-dependent and that, in this case, they could consider another hike in the remainder of the year to combat the sticky inflation. The Federal Open Market Committee (FOMC) Minutes from the September meeting released on Wednesday noted this,  showing that members are considering the data volatility and the lags of financial tightening in their decisions.

Daily Digest Market Movers: US Dollar regains momentum as US bond yields and hawkish Fed bets rise

• The DXY US Dollar Index gained momentum and rose to 106.30, a weekly high.
• The US Consumer Price Index (CPI)  increased 3.7% YoY, which was higher than the market consensus of 3.6% and matched the previous monthly figure. On the other hand, the Core measure came in at 4.1% YoY, matching the expectations and decelerating from the previous 4.3% YoY.
• The September US Producer Price Index (PPI) rose 2.2% on Wednesday, higher than the expected 1.6% and accelerating from  the previous 2%.
• U.S. bond yields are increasing across the board. The 2-year yield has climbed to 5.07%, marking a substantial rise of over 1.50%. Similarly, the 5-year and 10-year yields have surged to 4.64% and 4.66%, respectively, showing strong advances of nearly 2%.
• According to the World Interest Rates Possibilities (WIRP) tool, the odds of a 25 basis point hike (bps) by the Federal Reserve rose to nearly 50% for the December meeting.

Technical analysis: US Dollar Index’s bulls revive to retake 20-day SMA

The DXY US Dollar Index still displays a neutral to bearish technical outlook in the short term, according to the daily chart. Buyers need to build strong support over the 20-day Simple Moving Average (SMA), but they will still face challenges from the bears who gathered strong momentum in the last sessions. The Relative Strength Index (RSI) displays a positive slope above its middle-point, while the Moving Average Convergence Divergence (MACD) stands in negative territory.

Supports: 106.00 (20-day SMA), 105.80, 105.50.
Resistances: 106.50, 107.00, 107.30.