US Dollar Index (DXY) eases despite stronger-than-expected US PPI

• The US Dollar Index (DXY) shows a limited response despite stronger US PPI data.
• Core PPI jumps 0.8% MoM, reinforcing sticky inflation concerns.
• Markets dial back June cut odds below 50%.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, shows a limited reaction to the stronger-than-expected US Producer Price Index (PPI) data. At the time of writing, the index trades near 97.65, easing from the daily high around 97.85.

Data released by the US Bureau of Labor Statistics showed that the headline PPI increased 0.5% MoM in January, exceeding the 0.3% forecast. December’s reading was revised lower to 0.4% from 0.5%.

On an annual basis, PPI rose 2.9%, above the 2.6% expectation, though slightly below the previous 3.0% print.

Core PPI, which excludes food and energy, climbed 0.8% MoM, sharply higher than the 0.3% estimate. December’s core reading was revised lower to 0.6% from 0.7%. On a yearly basis, core PPI accelerated to 3.6% from 3.3%, topping the 3.0% forecast.

The hotter-than-expected producer price data reinforced the view that underlying inflation pressure remains persistent, strengthening the case for the Federal Reserve (Fed) to remain patient before resuming interest rate cuts, as officials wait for clearer evidence that inflation is moving sustainably back toward the 2% target.

Markets increasingly expect the Fed to keep interest rates unchanged at the March and April meetings, while the probability of a June rate cut has fallen below 50%, according to the CME FedWatch Tool. Traders now see July as the more likely point for the Fed to resume its easing cycle, with around 50 basis points of total rate cuts priced in by year-end.

Diminishing expectations for near-term interest rate cuts are lending short-term support to the Greenback, helping cushion the downside and partially offset concerns over renewed trade policy uncertainty.

Earlier this week, a fresh 10% global tariff took effect, just days after the US Supreme Court ruled against the Trump administration’s earlier use of emergency powers to impose tariffs.

Broader structural headwinds continue to cap any sustained recovery in the US Dollar. Major central banks are reducing their USD holdings amid concerns over US President Donald Trump’s protectionist trade policies and attacks on the Fed's independence.