Dollar jumps as hotter US CPI revives Fed rate hike fears

The dollar turned higher after US inflation came in hotter than expected. September CPI rose 3.7% from a year earlier against 3.6% expected, and the Investing.com headline says the dollar "pops as hot inflation triggers rate hike fears." That reverses the softer tone in our last recap, when the dollar slipped across the majors after Fed's Williams cooled hike bets.

What the CPI report showed

According to investingLive, the details were firm almost everywhere:

• Headline CPI: 3.7% y/y vs 3.6% expected, up from 3.4%.
• Headline m/m: 0.6%, in line with forecasts, after 0.4%.
• Core CPI: 2.6% y/y vs 2.5% expected, up from 2.4%.
• Core m/m: 0.33% vs 0.2% expected.
• Supercore y/y: 3.13%, up from 3.022%.
• Real weekly earnings: -0.5%, after +0.2%.

The core miss looks like the key. Before the release, investingLive noted that headline inflation was expected to look "rather ugly" and asked whether markets would care, with Treasury yields having threatened multi-decade highs over the past week. The upside surprise in core answered part of that question.

For a plain explainer of how the index works, see our sister site's guide on what CPI means for forex traders.

Market reaction

Investing.com reports that the US 10-year yield jumped as hot inflation "re-injects rate-hike fears." Sterling gave up its early gains. The publisher's sterling report now says the pound fell as hotter US core inflation boosted the dollar.

Investing.com also reports that UBS is sticking to its buy-dollar-on-dips call. That is the bank's view, not ours.

Before the data, the investingLive European wrap said markets trimmed gains as crude extended its rise on escalating Houthi attacks on Saudi Arabia.

The fixing as a reference point

The ECB reference rates of October 14 show only small moves against the October 13 fixings. Treat them as a reference point, not a live read of the post-CPI reaction.

• EUR/USD fixed at 1.1195, up 0.06%.
• GBP/USD fixed at 1.3267, up 0.15%.
• USD/JPY fixed at 158.45, up 0.21%.
• AUD/USD fixed at 0.7010, up 0.46%, the biggest daily gain among the majors.
• USD/CAD fixed at 1.4219, down 0.15%.

Over five fixings, USD/MXN stands out, up 1.5% to 18.365. Charts: DXY and EUR/USD.

Central banks and data in the news

Europe. Inflation pressure keeps building. investingLive reports that Spain's final September CPI was confirmed at 4.9%, up from 4.3%, with HICP at 5.0% and core rising to 3.1% from 2.9%. The publisher says this adds to ECB rate hike pressure. German wholesale prices rose 1.9% m/m and 8.7% y/y, the largest annual jump since February 2023, according to investingLive. The ECB also published a speech by Frank Elderson titled "Ensuring resilience in the face of uncertainty."

China. New bank loans reached ¥1.08 trillion in September, beating expectations of ¥975 billion. But investingLive notes lending is still down roughly 16% from a year earlier.

Canada. August building permits rose 8.8% m/m against 2.0% expected, investingLive reports, with the prior month revised to -15.8%.

What to watch next

• Fed hike pricing. Whether the hot core reading keeps the rate hike fears in the headlines alive after Williams' softer comments.
• US yields. Investing.com flagged the jump in the 10-year yield. A return toward the recent multi-decade highs would matter for the dollar.
• Oil and the Middle East. investingLive tied the crude rally to Houthi attacks on Saudi Arabia.
• ECB hike talk. Spanish and German price data add to the pressure, according to investingLive.