US Dollar Index holds around 99.00 as investors await inflation figures

US Dollar Index Maintains Strength Ahead of Key Inflation Data

The US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six major currencies, is holding firm near the 99.00 mark in early Tuesday trading. This stability follows a slight decline in the previous session. Investors are now turning their attention to the upcoming Consumer Price Index (CPI) report for December, set to be released later in the North American session, as it may provide fresh insights into the Federal Reserve’s next policy moves.

The US Dollar has recently encountered headwinds amid growing expectations that the Federal Reserve may adopt a more dovish stance. Weaker-than-anticipated job growth figures for December have fueled speculation that the Fed could opt to keep interest rates unchanged at its upcoming meeting.

Market participants currently anticipate that the Federal Reserve will implement two rate cuts this year, beginning in June. However, if inflation data exceeds forecasts, the likelihood of monetary easing could diminish. According to the CME Group's FedWatch tool, there is a 95% chance that the central bank will leave interest rates steady at its January 27–28 gathering.

John Williams, President of the Federal Reserve Bank of New York, commented late Monday that current US monetary policy is well-suited to guide inflation back toward target levels without negatively impacting employment. He also noted that there is no urgent need for further rate reductions as the Fed approaches a neutral policy position.

The Dollar has also been pressured by concerns regarding the Federal Reserve’s independence. This follows threats from federal prosecutors to indict Chair Jerome Powell over his congressional testimony related to a building renovation, an action Powell has characterized as an effort to undermine the central bank’s autonomy.

Geopolitical risks are also in focus as traders monitor escalating tensions in the Middle East. US President Donald Trump recently stated that Iran’s leadership is seeking negotiations in response to his military threats, but he cautioned that potential action could precede any diplomatic talks.