DXY Rises After Inflation Print

The US dollar index rose 0.3% to around 102 on Tuesday as stronger-than-expected inflation data reinforced expectations that the Federal Reserve will continue raising interest rates. Consumer prices rose 0.4% in October, more than market expectations of a 0.3% increase, while core CPI advanced 0.3% for a third consecutive month, also above forecasts of a 0.2% rise. Money markets increased bets on at least two additional rate hikes by mid-2027, with investors anticipating another increase at the Fed’s December 8-9 meeting. The BLS could not provide annual comparisons because data collection was disrupted by last year’s government shutdown. Meanwhile, traders also raised expectations for a potential de-escalation in the Middle East after President Donald Trump said further strikes on Iran might not be necessary, although he maintained that the US remained “locked and loaded.”

The US Dollar Index hovered around 101.7 on Tuesday after weakening in the previous session, as investors awaited the October Consumer Price Index report, with both headline and core inflation expected to ease amid stabilizing energy prices. Richmond Fed President Tom Barkin said on Monday that the central bank should proceed “with care” when adjusting monetary policy, highlighting persistent inflation as its biggest concern. Markets are currently pricing in an 84% probability of a Fed rate hike in December, up considerably from around 74% a week earlier following last week’s stronger-than-expected employment data. Meanwhile, demand for the dollar as a safe-haven asset softened as oil prices continued to decline on growing optimism over a potential US-Iran peace agreement. President Donald Trump expressed confidence that the conflict in Iran was nearing an end following discussions with Qatar’s prime minister.

The dollar Index fell nearly 0.4% to 101.8 on Monday, reversing some of Friday’s 0.7% rally, its largest daily gain in nearly six months. The greenback came under pressure amid declining oil prices, while the AI-driven market rotation lost momentum. Last week, a Democratic sweep of Congress last week prompted investors to price in the possibility of tighter regulation and potential constraints on AI-related capital expenditure. Meanwhile, markets are turning their attention to this week’s CPI and PPI releases, which are expected to signal a moderation in both monthly headline consumer and producer inflation. Against this backdrop, market-implied odds of another 25bps Fed rate hike next month currently stand at around 80%. The dollar weakened broadly, recording its steepest losses against the Australian dollar, euro and British pound.