Greenback Weakens as Growth Momentum Fades

Key Takeaways:

* The dollar eased as soft consumer sentiment and weaker industrial output overshadowed firm retail sales, highlighting uneven U.S. growth.
* With inflation still sticky but demand showing cracks, the Fed’s rate path remains uncertain, leaving markets sensitive to incoming data.
* Greenback moves are increasingly tied to Treasury yields and shifting Fed cut expectations rather than strong domestic momentum.

Market Summary:

U.S. equities closed virtually unchanged on Tuesday as investors adopted a wait-and-see approach ahead of several potentially market-moving events. The muted trading session reflected a delicate balance betweThe U.S. dollar has come under renewed pressure as a mix of softer domestic data, policy uncertainty, and easing geopolitical risks weighed on safe-haven demand. July retail sales offered a bright spot, rising 0.5% MoM, but this resilience was offset by weaker industrial production and a sharp drop in consumer sentiment, with the University of Michigan index sliding 5% MoM to 58.6. The divergence highlights an economy where consumption remains uneven, clouded by household caution and tariff-related cost pressures.

At the same time, inflation dynamics have added complexity to the outlook. Producer Price Index data surprised to the upside with a 0.9% MoM jump with strongest since March 2022 reviving concerns about stagflation just as tariffs begin to pass through supply chains. Import prices also rose 0.4% MoM, suggesting U.S. firms are absorbing part of the shock, though margins may not hold indefinitely. The rise in input costs challenges the narrative of imminent disinflation, even as growth data show signs of strain.

On the policy front, Federal Reserve officials have struck a cautious tone. Chicago Fed President Austan Goolsbee stressed the need for “clarity” before cutting rates, aligning with the broader view that sticky services inflation leaves little room for aggressive easing. Markets continue to price a 25bps cut in September, though Treasury Secretary Scott Bessent has openly pushed for a larger 50bps move—an option facing resistance from policymakers. The debate underscores the tension between political calls for stimulus and the Fed’s inflation-fighting mandate.

Adding to the dollar’s bearish tilt, the Trump-Putin summit in Alaska provided a temporary easing of geopolitical stress, reducing safe-haven flows into the greenback. Both leaders described the talks as “productive,” and while no ceasefire was agreed, Trump’s delay of secondary sanctions on Russian oil exports signaled a desire to avoid near-term escalation. As risk appetite improves, investors have shifted toward higher-yielding and commodity-linked currencies, further pressuring the dollar. In the near term, the greenback’s trajectory will be defined by upcoming inflation data and Fed communication, with risks skewed to the downside unless core PCE surprises higher.

Technical Analysis

DXY, H4:

The US Dollar Index (DXY) is holding just above the 97.75 zone, consolidating after recent downside pressure. Price action remains capped below the 50-period moving average near 98.15, which is acting as immediate resistance. A decisive break above this level would open the path toward 98.60, followed by stronger resistance at 99.25, while the psychological 100.15 level marks a key upside barrier if bullish momentum strengthens. On the downside, initial support rests at 97.75, with further levels at 97.10 and 96.50 that both represent important inflection zones that could define the next directional move.

Momentum indicators remain neutral to slightly bearish. The RSI is currently tracking near 44, signaling a lack of strong buying conviction and leaving room for further downside if support levels give way. Meanwhile, the MACD is flatlining near the zero axis, with a minor bearish bias as the signal line remains slightly above the MACD line, reflecting subdued momentum.

Resistance level: 98.60, 99.25

Support level: 97.75, 97.10