Another Leg Higher in the USD As US Inflation Decline Stalls

Everything is pointing up for the US Dollar and today’s higher US inflation CPI numbers just gave it another push to the upside. It made strong gains in October ahead of the US presidential elections and continued the bullish momentum after the elections as well.

Today’s US CPI data suggests that inflation is stabilizing close to the current levels, with both core and headline measures showing modest year-over-year growth. The slight month-over-month increase in CPI, in line with forecasts, points to controlled inflation, which aligns with the Fed’s target of gradual price stability.

While real weekly earnings have inched upward, indicating a minor improvement in purchasing power, core services inflation (particularly outside shelter costs) has moderated, suggesting easing pressures in some key service sectors. This controlled inflation landscape may give the Federal Reserve more flexibility, potentially reducing the urgency for future rate cuts, however the trend is declining and this is just a month, which doesn’t really change the broader picture, however the USD is rallying again.

US Inflation CPI Report for October

• • Headline CPI y/y for October: +2.6% vs 2.6% expected
  • September CPI was +2.4%
  • Month-over-Month Headline CPI: +0.2%, matching expectations
    • Unrounded m/m CPI: +0.2441% vs +0.1799% prior
• Core CPI Details:
  • Core CPI y/y: +3.3%, vs 3.3% expected
  • Core CPI m/m: +0.3%, vs 0.3% expected
    • Unrounded Core CPI m/m: +0.2800% vs +0.3124% prior
• Additional Metrics:
  • Real Weekly Earnings: +0.1% vs a prior (revised) +0.1%
  • Core Services Excluding Shelter: +0.3% vs +0.554% prior
  • Core CPI Services Ex-Rent/OER: +0.2% vs +0.404% prior

The initial market response to the US CPI report was a slight dip in the US dollar, with a 20-pip decline as traders reacted to headline inflation coming in as expected. However, Gold dropped below $2,600 once more, USD/JPY recovered the 155 level, while EUR/USD plunged to the 1.550s, as the dollar quickly rebounded and rallied approximately 60–70 pips, likely driven by attention to the unrounded core CPI figure and core services excluding housing. These components pointed to persistent inflation pressures, despite modest overall CPI stability. This unexpected resilience in the dollar indicates that markets may be interpreting the inflation data as supportive of the Fed maintaining a cautious stance on interest rates.