DXY Dollar Index looks weak and falls to 7-month lows near 102.30

• The DXY index falls well below the 103.00 level on Thursday.
• US disinflation continued into December.
• US yields extend post-CPI decline.

The US dollar index (DXY)which measures the strength of the dollar against a basket of major currencies, looks pressured down and returns to the 102.30 area for the first time since the beginning of April last year.

DXY Index breaks below 103.00 on US inflation.

The DXY index worsens its fall after US inflation figures extended the decline in December. In fact, the general CPI rose by 6.5% in the last twelve months and the core CPI by 5.7% with respect to the previous year, which represents the sixth consecutive monthly decline.

The initial drop in US yields has put additional selling pressure on the dollar, although the middle and long ends of the curve manage to pare some of that momentum so far.

Another month with lower inflation figures reinforces investors’ perception of an imminent change in the Fed’s tightening cyclewhich also translated into an increase in expectations of a 25 basis point rate hike at the meeting on February 1.

Other data on the US calendar included weekly jobless claims rising by 205,000 in the week to January 7, beating initial estimates and maintaining the view of a (still) healthy labor market.

What can we expect around the dollar?

The dollar remains under pressure and tries to bounce after the US CPI release at multi-month lows in the 102.35/30 region.

Another softer fact about US inflation in December reinforces the idea of ​​a probable turn in the Fed’s monetary policy in the coming months, which also contrasts with the hawkish message of the latest FOMC minutes and recent rate-setters, all of whom point to the need to stay tighter for longer, at a time when in which the probability of any reduction in interest rates in the current year remains close to zero.

Regarding the latter, the rigidity of the labor market and the resistance of the economy are also considered supports for the firm message of the Federal Reserve and its cycle of increases.

Relevant Dollar Index DXY Levels

At time of writing, the DXY Index is down 0.10% on the day, trading at 103.15. A break of 102.32 (Jan 9 low) would open the door to 101.29 (May 30 low) and 100.00 (psychological level). Elsewhere, the next bullish barrier stands at 105.63 (Jan 6 high), followed by 106.38 (200-day SMA) and 107.19 (Nov 30 high).