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Tuesday is widely expected by market players as the release of US inflation data is scheduled. In anticipation of the key data, greenback was prompted to pull back from its previous seven-month peak.

The US dollar index showed a dip of 0.09% to 97.77 ahead of the data, off yesterday’s seven-month high that tacked on 98.15.

But as of 13:10 GMT, the dollar went steady after the announcement of US inflation data, wherein it was revealed that the cost of living in the US surged at the fastest pace in five months in September. The US currency ticked up by 0.02% to 97.89.

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The Labor Department posted that the consumer price index climbed 0.3% in September, in line with economists’ forecasts after a 0.2% advance in August. On a year-over-year basis, consumer prices tacked on 1.5%, the highest since October 2014 and more than August’s 1.1%. Core inflation, excluding volatile food and fuel expenses, edged up 0.1%.

The surge in headline prices was driven largely by oil prices, which inched up 2.9% in the month. Apparel prices were the prime drag as seasonal sales and discounting begins to occur, as apparel prices declined by -0.7%.

The surprise recovery in inflation indicated that the economy may be able to sustain higher interest rates, thus boosting the dollar. The report also comes in a divisive time for Federal Reserve members.

For detailed and informative news on the effects of the dollar boost and the US inflation data, FSM News houses a myriad of stories ranging from forex, commodities, economy, finance, stocks, technology, consumer products and automobile industry. See how the other stocks or commodities fared as the dollar came steady after the data report with FSMNews.

Pull Back from Highs: Fed, US Data

A number of events had contributed to the dollar taking a breather from its recent gains previously. Attributing to the dollar’s early Tuesday turnabout was a disappointing industrial production report posted in the prior session. The greenback came under pressure after data revealed an increase by 0.1% last month, failing to top expectations for a gain of 0.2%.

Additionally, the Federal Reserve of New York said its Empire State manufacturing index dropped to -6.80 in October from September’s -1.99. Analysts had projected the index to surge to 1.00.

Greenback was also hit following Fed Vice Chairman Stanley Fischer’s claims on Monday that economic stability could be endangered by low interest rates; however, it was "not that simple" for the US central bank to push rates higher. On Friday, Fed Chief Janet Yellen struck a dovish tone on raising rates.

US interest rates remain a core focus of the markets with a December rate hike still awaited. However, a rate hike this year is still far from a sealed arrangement. The Fed’s next policy meeting will be on November, but markets are not expecting a rate increase in the period of the US Presidential elections set on November 8. Fed Funds markets are pricing in a small 7% chance for a rate hike in November. December odds tacked at 70% for at least one rate hike, lingering above the historical 60% threshold.

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USD Analysis

As the dollar stands steady in the trading session, it did not move too far from Monday’s highs. On the chart below, the bullish trend seemed strong for the dollar to remain in. Bollinger bands show no clear sign of squeezing in, thus the greenback remains in volatile trading in the midst of a rally. October 3 marked the beginning of a bullish breakout on a similarly robust data on US manufacturing activity. Sentiment lingered and a string of strong US key data kept the dollar buoyed, until the aforementioned events.

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Now that September CPI had proved to be better-than-expected, a strong rebound in the dollar is projected. Previous pull back fundamental factors may linger in the market and affect sentiment. However, inflation figures were strong enough to tip the balance back into the bulls’ favor.

This steady state and weakness of the dollar is forecasted to be temporary, and we predict that the dollar will push higher given enough time.

Ultimately, with the inflation nearing the Fed’s target of 2.0%, it may be time for a reconsideration to increase rates in the near-future. While the recent comments of Fed authorities have been either dovish or fenced, the world’s largest economy is showing signs of improvement, which will be prime factors for a rate hike.

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