đź’µ Dollar Reaction to September Inflation Data
The U.S. dollar remained almost flat on Friday, following a brief dip triggered by softer-than-expected inflation data. The Consumer Price Index (CPI) rose 0.3% in September, slightly below economists’ forecast of 0.4%, while the year-on-year increase was 3.0% versus a forecast of 3.1%.
“The headline was a bit softer than expected. The dollar was sold on the news, even though the market had nearly 100% confidence before the report that the Fed would cut rates, not only next week, but in December,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets.
The CPI report was published despite the government shutdown, which has delayed multiple economic releases, including this key measure used to calculate Social Security cost-of-living adjustments.
The U.S. dollar index was last down 0.003% at 98.934, after earlier falling as much as 0.2%.
🌍 Global Currency Movements
- Euro (EUR/USD): +0.06% at $1.163, boosted by stronger-than-expected business activity in the eurozone
- Canadian dollar (CAD/USD): weaker at 1.403 per USD, following termination of U.S.-Canada trade talks over an Ontario ad
- Japanese yen (JPY/USD): weakened to a two-week low of 152.87, impacted by higher oil prices and expectations of near-term rate hikes
- British pound (GBP/USD): +0.08% at $1.334, lifted by stronger retail sales, including demand for online gold
Japan’s core inflation remains above the Bank of Japan’s 2% target, keeping market expectations of near-term rate hikes alive. Meanwhile, Prime Minister Sanae Takaichi is preparing an economic stimulus package exceeding last year’s $92 billion.
🔑 Key Drivers
- Federal Reserve Rate Cuts: Softer inflation reinforces expectations of upcoming rate cuts, with traders factoring in cuts next week and in December.
- Trade Talks: Markets are focused on the upcoming Trump-Xi meeting in South Korea, which could de-escalate the US-China trade conflict.
- Energy and Sanctions: New U.S. sanctions on Russian oil suppliers Rosneft and Lukoil pushed up oil prices, affecting currencies tied to oil imports, including the yen.
- Retail and Consumer Data: Stronger retail sales in the UK and eurozone services growth contributed to currency stability.
đź“Š Takeaways
- Dollar remained largely flat despite temporary dips on CPI news
- Global markets sensitive to Fed policy, trade developments, and energy prices
- Yen and CAD under pressure due to oil price fluctuations and trade tensions
- EUR and GBP slightly supported by positive regional economic data
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