Dollar Near 18-Month High Before US Inflation Data

The dollar index climbed above 102 by the end of September from near 98.8 early in the month, a gain of nearly 2 percent that pushed the gauge past its July highs near 101.6 and left it within sight of the 18-month peak area reached last week. On Monday, with Japanese markets shut and liquidity sparse across the region, it sat slightly softer at 102.14 to 102.16, yet the greenback stayed well bid.

Weekend residue was still on the tape. Houthi strikes against Saudi Arabia had escalated. Two tankers were attacked. On Sunday Trump had floated an energy ceasefire between Russia and Ukraine; by Monday Russia had given no response, and strikes on Ukrainian energy infrastructure continued. Brent crude swung between gains and losses in Asian hours, falling as the ceasefire talk weighed against fresh Gulf supply risk.

Commonwealth Bank of Australia analysts put the stakes without decoration. “We expect the Houthis to continue their attacks on Saudi Arabian energy assets, supporting gains in the oil price and the USD,” they wrote. On the diplomatic track they added that “we do not expect a breakthrough this week.”

Lee Hardman, currency strategist at MUFG, traced the source of the bid. “The US dollar has strengthened recently on the back of negative developments overseas that have boosted its appeal even as market participants have pared back expectations for Fed rate hikes.”

Those pared expectations showed up in the rates market. The two-year Treasury yield slipped to 4.75 percent from 4.84 percent. The 10-year eased toward 5.25 percent. Even so the greenback stayed supported. the Reserve Bank of India redirected oil companies’ dollar purchases away from the spot market, and the rupee lifted. Safe-haven demand from the overseas tape was still doing work the rates path no longer fully explained.

On September 16 the Federal Reserve raised its benchmark by a quarter point to a range of 3.75 percent to 4.00 percent. It was the first increase since July 2023. Markets then dialed back the odds of an immediate encore. CME FedWatch put the chance of a hold at the next meeting near 81 to 82.8 percent, up from 51 percent a month earlier, when a hike still carried 42.5 percent. The median Fed projection for the end of 2026 stood at 4.1 percent, enough for one more quarter-point move from current levels. Core CPI for September is forecast at 0.2 percent month-on-month. Headline is seen at 0.6 percent, taking the annual rate to 3.6 percent from 3.4 percent.

Chris Weston, head of research at Pepperstone, put the threshold in plain words. “It’s a very high bar for the Fed to raise rates in October.” He continued: “But if we do see a hot number, the question becomes whether they could go again in January — hiking in December and then potentially again in January, as opposed to the market’s view that they go again in March.”

Households had already flinched. The University of Michigan’s preliminary October sentiment index fell to 46.3 from 48.1 in September, a five-month low and below one forecast of 47.6. One-year inflation expectations rose to 4.7 percent from 4.6 percent. Five-year and long-run expectations moved to 3.5 percent. The September inflation figures would decide whether the dollar’s hold near its high extends or stalls.

The euro steadied near 1.12 after five straight weekly declines. Support remained fragile. The premium investors demanded to hold French ten-year government bonds over German debt had widened to around 138 basis points, near its highest since 2012. French fiscal stress kept that spread close to its widest and left the common currency’s footing thin even on a quiet Monday.

OCBC FX strategists took the measure without claiming a verdict. “It is still too early to tell whether higher borrowing costs will be sufficient to impose greater fiscal discipline on the French government,” they wrote. On the pair itself they saw consolidation, not relief: “We expect EURUSD to consolidate as the intensity of French fiscal and political headlines is unlikely to be sustained.”

Europe’s structural limits still capped any sustained rebound. The euro carries a 57.6 percent weight in the dollar index, so its drag does outsized work for the greenback against the basket. Desks favored the cyclical contrast—decent US growth, inflation still above target—while energy stayed firm enough to keep that story alive. Chart watchers had begun arguing over whether the dollar’s climb itself was finished.

Macro strategist Gert van Lagen posted the chart on October 10. The dollar index had returned to a trendline drawn through the weekly closes of 2023 and 2024. “#DXY is all set for a sharp rejection. Finally a bareish retest with macro implications, i.e. a weekly close at the trendline through the 2023 and 2024 weekly closes.”

Sweep, co-founder of GlydeGG, also described the same zone as a bareish retest. Trader Alejandro took the opposite camp and looked for another major leg higher. “I believe the dollar is setting up for another major move higher,” he said. “A stronger dollar tightens financial conditions and tends to put pressure on risk assets, especially crypto and altcoins.” One reading saw the line as the place the rally finally failed. The other saw it as the base for the next push, with tighter conditions and pressure on risk assets if the greenback broke higher.

The index held around 102.2 to 102.25. It remained capped below the 18-month peak near 102.50.

September’s consumer price index is due Wednesday, October 14, at 8:30 a.m. Eastern, 12:30 GMT. The index measures the change in prices households pay for a basket of goods and services, and the September figures rank among the last major releases before the Federal Reserve meets again. Producer prices and retail sales follow on Thursday. Policymakers sit October 27 and 28; one source dates the decision to October 28.

Futures tracked by VT Markets implied about 20 percent odds of a hike on October 28 and about 70 percent for December 9. Currency desks waited on the print with the dollar index consolidating above 102. Chris Turner’s Monday note for ING called that pattern bullish and set the preference for a push toward 102.85 this week. Liquidity still carried the holiday-thinned open and the unanswered Gulf-and-ceasefire tape.