The US dollar index (DXY) has been struggling since the start of the week amid the latest conflict over the criminal investigation into Fed Chairman Jerome Powell and the release of US inflation data for December.
At 9.50am, the USD Index was at 98.945 points, up 0.06% since it opened in early trading on Tuesday in the Asian session.
Market sentiment was mixed following the shocking report of a criminal investigation into Federal Reserve (Fed) Chairman Jerome Powell, which has sparked concerns about the independence of US financial institutions.
The development has created uncertainty among investors, especially as it potentially undermines the credibility of the Fed's monetary policy at a time when the market is assessing the direction of interest rates for the first quarter of 2026.
At the same time, the main focus of the market is also directed to the US inflation data series for December, which is expected to be the main determinant of the dollar's movement in the near term.
The upcoming Consumer Price Index (CPI) data is expected to provide a clearer picture of whether price pressures are still ongoing or are starting to show signs of easing, thus influencing expectations of a Fed rate cut.
However, any dollar strengthening is seen as limited for now as the market is still assessing the true impact of the political conflict on the Fed and its impact on the stability of US monetary policy.
If the CPI data shows a higher-than-expected increase in inflation, the US dollar could potentially receive additional support, while riskier assets and commodities could face selling pressure.
Overall, DXY movement is expected to remain in cautious mode ahead of the release of key US inflation data, with volatility potentially rising in the New York session tonight as the market begins to digest the true direction of the US economy and monetary policy.
