Dollar recovery follows initial CPI shock
The US Dollar (USD) retraced its initial losses following the November CPI report, stabilizing around 98.69 on the DXY index. Although inflation eased more than expected, market skepticism over the data’s reliability limited the downside move. According to OCBC FX analysts Frances Cheung and Christopher Wong, headline CPI came in at 2.7% and core CPI at 2.6%, both below expectations of 3.1% and 3%, respectively. The deceleration was driven by falling costs in hotel, recreation, and clothing categories, while shelter prices saw only a modest increase.
“The unusually large deviation between reported CPI and expectations has drawn attention to potential data-collection challenges caused by the government shutdown, as well as possible distortions due to Black Friday sales,” OCBC analysts noted. As a result, markets were reluctant to interpret the data as a signal for a significantly more dovish Federal Reserve path. This helped the USD stabilize after its initial knee-jerk reaction.
30-day Fed fund futures still imply a ~26% probability of a rate cut in January, while expectations for cumulative cuts through 2026 remain largely steady at -62 basis points.
Attention now turns to the December CPI release, scheduled for January 13 — the final major inflation datapoint ahead of the January 28, 2026 FOMC meeting. This release will be critical in determining whether November’s softness is confirmed by a second consecutive print or dismissed as a statistical anomaly. For the USD, sustained downside pressure will likely require clearer evidence of persistent disinflation.
On the daily chart, mild bearish momentum remains intact, though there are tentative signs of it waning. The RSI is turning higher from oversold conditions, suggesting a potential shift in sentiment. Two-way trades are likely in the near term.
Compression of the 21-, 50-, and 200-day moving averages has been observed — a technical setup that often precedes a breakout. Key support levels are seen at 97.90 and 97.60 (23.6% Fibonacci retracement), while resistance is located at 99.10/20 (confluence of moving averages and 50% retracement from May high to September low) and 99.80 (61.8% Fibonacci).