USD weakens as December CPI confirms cooling inflation at 2.7% YoY

The US dollar fell broadly after December CPI data met expectations at 2.7% year-over-year, confirming November's disinflationary trend. The dovish market reaction saw US equities rally, precious metals surge, and Treasury yields drop as traders increased Fed rate cut expectations from 52 to 57 basis points for 2026. The dollar index declined 0.4% following the release, with major pairs posting gains against the greenback. While the data validates the Fed's recent dovish pivot, it's unlikely to dramatically alter the central bank's cautious approach to monetary policy. Technical indicators suggest further dollar weakness possible, with DXY support at 108.50 and resistance at 109.80. Traders should monitor upcoming retail sales and employment data for confirmation of economic softening that could accelerate Fed easing expectations.