Dollar Extends Losses; Market Eyes PCE and Debt Risk

Key Takeaways:

• U.S. Dollar Index slides toward multi-week lows ahead of core PCE release

• Recent CPI and PPI data miss forecasts, fueling rate-cut bets

• Ballooning U.S. debt and FX repayment risks weigh on long-term dollar outlook

Market Summary:

The U.S. Dollar Index (DXY) continued to trend lower on Tuesday as investors braced for this week‘s release of the Federal Reserve’s preferred inflation gauge—the core Personal Consumption Expenditures (PCE) index. The decline in the greenback follows a series of softer-than-expected U.S. economic readings, including last weeks Consumer Price Index (CPI) and Producer Price Index (PPI), which reinforced growing expectations that the Fed may cut interest rates in the second half of 2025.

Underlying economic concerns are also weighing on sentiment. In addition to weaker macro data, ballooning U.S. public debt is drawing fresh scrutiny. A depreciating dollar complicates the governments position further by raising the cost of servicing foreign-denominated debt. Market participants are increasingly factoring in currency-related risks alongside fiscal and monetary policy uncertainty.

On the geopolitical front, the tentative ceasefire announced between Israel and Iran has offered a temporary reprieve from safe-haven flows. Improved risk appetite has triggered a shift into higher-yielding and risk-sensitive assets, including the euro and British pound. Still, traders remain cautious ahead of further confirmation from Iran and clarity on U.S. inflation trends.

The dollar‘s medium-term direction will hinge heavily on upcoming inflation data, the Fed’s policy response, and the broader macro backdrop—including the evolving debt ceiling debate and geopolitical headlines.

Technical Analysis

Dollar_Index, H4:

The Dollar Index remains under pressure, currently testing a key support level at 97.80. A decisive break below this threshold could open the door toward deeper losses, with the next target at 97.30. However, technical indicators are signaling a potential short-term rebound: the MACD shows signs of diminishing bearish momentum, while the RSI is hovering near 33, suggesting the index may be approaching oversold territory.

Should the dollar hold above 97.80, a technical correction could drive a retest of resistance at 98.60, possibly consolidating in a range between 98.60 and 97.80 before the next directional breakout—likely dictated by Thursdays core PCE data.

Resistance Levels: 98.60, 99.25

Support Levels: 97.80, 97.30