US Dollar: Consolidation at higher levels before CPI – MUFG

MUFG’s Lee Hardman notes the Dollar index is holding just above 102.00 as softer US data and cautious Federal Reserve (Fed) communication have reduced expectations for immediate rate hikes. Markets now price only modest tightening this month. The upcoming US CPI report and comments from Fed Chair Kevin Warsh are seen as key for confirming a likely pause before a potential December hike.

Dollar steadies as markets eye CPI

"The major foreign exchange rates have remained stable overnight with the dollar index continuing to trade close to year-to-date levels at just above the 102.00-level."

"The recent run of softer US data (PCE deflator report for August and NFP report for September) alongside cautious comments over the need for another back-to-back hike from the Fed’s leadership have dampened expectations for another rate hike as soon as this month."

"Market expectations for the Fed to stay on hold this month will be tested by the release on Wednesday of the latest US CPI report for September."

"Unless there is a significant upside surprise for underlying inflation, we expect the Fed to leave rates on hold this month."

"It is likely to be only a temporary pause as the Fed currently plans to hike rates again before the end of this year in December."