The US Dollar (USD) has managed to recover some of the losses it experienced earlier, showing a slight increase as the release of the Consumer Price Index (CPI) data for September approaches, set to be unveiled at 12:30 GMT.
During European trading hours, the US Dollar Index (DXY), which gauges the USD’s strength against six major currencies, registers a modest gain, hovering around 102.24.
US inflation preview highlights divergence between headline and core
Rabobank analysts provide insights ahead of the September CPI release, mentioning that “headline CPI is anticipated to rise to 3.6% year-on-year and 0.6% month-on-month, up from 3.4% year-on-year and 0.4% month-on-month previously.” Conversely, they project that core inflation pressures may diminish, with an estimate of “core CPI inflation at 2.5% year-on-year and 0.2% month-on-month, compared to 2.45% year-on-year and 0.29% month-on-month before,” explaining that “energy [is] likely to drive the difference between headline and core figures.”
Market participants are likely to closely monitor the upcoming inflation data to gauge its implications for the Federal Reserve’s (Fed) interest rate strategy. There have been ongoing discussions among policymakers about persistent inflation risks, notably citing energy supply challenges and demand driven by Artificial Intelligence (AI) as factors contributing to price pressures.
Fed’s Collins keeps hawkish bias but flags data dependence into the new year
Fed’s Collins rates a 7.1 on the FXS Speechtracker, which is slightly above the historical average of 6.7, further emphasizing a focus on inflation risks compared to the established baseline. His remarks about an “elevated risk of high inflation” and expectations that inflation will remain above 2% due to soaring energy prices, along with support for the recent rate hike, underscore a hawkish view. However, comments about a generally balanced job market and resilient growth introduce a note of caution, indicating a data-driven approach as we head into the new year. The stable job market supporting consumer spending—and the build-up of data centers pushing inflation readings—further underline concerns that underlying inflation pressures may endure.
The FXS Fed Sentiment Index dropped by 2.23 points to 131.63, reflecting a slight reduction in perceived hawkishness, despite the above-average speech score on the FXS Speechtracker. While still well above the neutral benchmark of 100, the Fed’s overall position remains hawkish, but this decline suggests that markets are starting to factor in a somewhat lower likelihood of further aggressive rate hikes, even as inflation risks remain prominent.
In terms of how the upcoming US CPI data could influence the Fed’s interest rate expectations, strategists at OCBC said in a report, “Should core inflation ease as projected, the markets might adjust expectations for further Fed tightening.” They noted, “A core CPI reading of 0.4% month-on-month or higher would likely be necessary to significantly alter market pricing and bolster the case for earlier Fed action.”
US Dollar Index Technical Analysis
On the daily chart, the Dollar Index Spot stands at 102.24, continuing its increase after reclaiming the 102 mark, suggesting a bullish near-term outlook. The price remains well above previous consolidation zones in the upper 90s and low 100s, indicating that underlying demand is still robust. Meanwhile, the Relative Strength Index (14) is at 66.32, just shy of overbought territory, indicating strong but potentially waning upward momentum.
With no immediate moving averages or Fibonacci levels in focus, the technical analysis continues to center on price movements and momentum. The index is boosted by a recent pattern of higher lows and a steady rise. As long as the RSI stays elevated without a sharp downturn, any dips could attract buyers; however, caution is warranted given the closeness to overbought conditions—aggressively chasing the current momentum may not be wise.
