DXY Falls on Thursday

The US dollar fell to 102 on Thursday, retreating from an 18-month high as falling Treasury yields weighed on the currency and Federal Reserve officials tempered expectations of an imminent rate increase. Recent economic figures offered little relief on inflation, with US producer prices rising at their fastest pace in more than four years, strengthening bets on tighter monetary policy. However, comments from Fed Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly suggested policymakers could wait for additional evidence before deciding on rates at their October 27–28 meeting. Meanwhile, a risk-averse mood supported demand for Treasuries as investors grew concerned about the debt exposure of artificial intelligence companies. Market participants are now looking to further comments from Fed Chair Kevin Warsh for clues on the policy outlook before the central bank’s communications blackout begins on Saturday.

The US dollar index slipped to around 102 on Thursday, retreating from 18-month highs as investors continued to evaluate the Federal Reserve’s monetary policy outlook following stronger-than-expected inflation data. Figures released Wednesday showed that annual headline inflation accelerated to 3.7% in September, surpassing forecasts of 3.6%, while core inflation edged up to 2.6%, above expectations of 2.5%. Chicago Fed's Austan Goolsbee described the figures as “discouraging” and cautioned that the rapid expansion of AI infrastructure could also be overheating the economy. However, some policymakers continued to favor a cautious approach to further rate increases, with markets pricing in roughly a 73% probability that the Fed will keep interest rates unchanged this month. Investors are now awaiting further remarks from Fed Chair Kevin Warsh ahead of the central bank’s media blackout, which begins on Saturday. The dollar weakened the most against the euro, sterling and kiwi.

The US dollar climbed as much as 0.7% to 102.88 on Wednesday, its highest level since April 2025 after fresh inflation figures strengthened expectations of further Fed tightening. CPI increased 0.6% in September from the previous month, the fastest rise in five months, while annual inflation reached 3.7%, above market expectations of 3.6%. Also, core CPI, rose 0.3% monthly and 2.6% annually, reinforcing concerns that elevated energy costs are keeping price pressures high. Markets subsequently priced in roughly a 50% probability of another Fed rate hike later this month, from just 22.1% a day ago. However, Fed Bowman said she saw no immediate need for another increase following last month’s hike, despite high inflation. Adding further pressure, oil prices continued to rise as escalating hostilities between Saudi Arabia and Iran-backed Houthi rebels heightened concerns over further supply disruptions in the Middle East.