Inflation Accelerates, Dollar Gains Ground
The United States Bureau of Labor Statistics (BLS) will release the highly anticipated Consumer Price Index (CPI) data for September on Friday at 12:30 GMT. This report is expected to play a key role in shaping the Federal Reserve’s (Fed) monetary policy outlook and could significantly impact the valuation of the US Dollar (USD).
Inflation in the United States is projected to rise at an annual rate of 3.1% in September, up from 2.9% in August—marking the fastest pace since May 2024. Core CPI, which excludes volatile food and energy prices, is also expected to increase by 3.1% year-over-year, matching the previous month’s figure.
On a monthly basis, headline CPI is forecast to rise by 0.4%, while core CPI is expected to increase by 0.3%.
Analysts at TD Securities anticipate a modest slowdown in core inflation, driven by easing services prices—particularly in housing. However, they expect goods inflation to accelerate due to increased tariff pass-through. “A still firm core should again result in a steady headline CPI at 0.4% m/m, as a jump in the energy segment likely also provided a notable boost to September prices,” they noted.
Heading into Friday’s inflation report, investors remain confident that the Fed will cut interest rates by 25 basis points in both October and December. According to the CME FedWatch Tool, markets are pricing in a 97% probability that the policy rate will fall from the current 4.00%–4.25% range to 3.50%–3.75% by year-end.
Due to the ongoing government shutdown and lack of other key economic data, the September CPI figures will be closely scrutinized by Fed officials ahead of next week’s policy meeting. While investors are unlikely to revise their expectations for an October rate cut, a significant upside surprise—especially in the monthly core CPI—could trigger a sharp market reaction. A 0.5% print may prompt investors to reassess the likelihood of a December cut and strengthen the USD.
Conversely, market positioning suggests that the USD has limited downside even if the CPI data fails to shift the Fed’s policy outlook.
Commerzbank FX analyst Antje Praefcke commented that the CPI data may reveal the extent to which tariffs imposed by the President of the United States have contributed to rising consumer prices. However, she added: “The data is unlikely to be a game changer for next week’s Fed meeting, as most Fed members believe that any tariff-related inflation effects will be temporary. The dollar is already trending somewhat stronger ahead of the figures, but even an upward surprise is unlikely to deter the Fed from cutting rates next week.”
Eren Sengezer, European Session Lead Analyst at FXStreet, offered a short-term bullish technical view: “The Relative Strength Index (RSI) on the daily chart is climbing toward 60, and the USD Index is holding comfortably above the 20-day, 50-day, and 100-day Simple Moving Averages (SMAs).”
He added: “On the upside, the 23.6% Fibonacci retracement of the January–July downtrend aligns as the next immediate resistance level at 99.50. A daily close above this level could attract technical buyers and open the door for a move toward 100.00 and 100.80 (200-day SMA).”
“On the downside, the 20-day SMA near 98.50 serves as interim support, followed by 98.10–98.00 (50-day and 100-day SMAs) and 96.40 as the final support zone.”