The US dollar edged higher during U.S. trading on Thursday (October 23rd) as traders adjusted their positions for Friday's delayed Consumer Price Index (CPI) report and geopolitical risks heightened amid escalating trade tensions. The dollar's gains were most pronounced against the Japanese yen, which has been weakening recently due to domestic political developments and fading policy optimism in Japan.



The USD/JPY exchange rate rose 0.49% to 152.718, nearing last week's seven-month high of 153.274. Market confidence in the yen weakened following the election of Japanese Prime Minister Sanae Takaichi, widely considered to favor easing policy, as leader of the ruling party. With the market now pricing in potential economic stimulus, attention has shifted to the feasibility of actual policy measures.

Other major currency trends

Meanwhile, the euro remained subdued against the dollar at 1.1609, while the pound sterling stabilized at 1.335 after recovering from a decline triggered by soft UK inflation data, which fueled expectations of a Bank of England rate cut.

Fed focuses on labor market, not inflation, with CPI report in focus

Markets are closely watching Friday's rescheduled CPI data for clues on the U.S. economy's momentum. The report, delayed by the government shutdown, will inform cost-of-living adjustments for Social Security and could also impact short-term market sentiment, even as the Federal Reserve shifts its focus to the health of the labor market.

Economists expect the headline CPI to rise 0.4% in September and the core CPI to rise 0.3%. Year-on-year, both indicators are expected to rise 3.1%. Analysts point out that persistent inflationary pressure stems from tariff-driven pricing of goods, particularly in clothing and furniture, but falling mortgage rates are seen as a mitigating factor that is expected to reduce housing costs and curb overall inflation.

U.S. Treasury yields edge up as trade friction reignites

Treasury yields rose slightly as markets digested Treasury Secretary Scott Bessent's confirmation that the United States may impose software export restrictions on China: the 10-year bond yield rose to 3.995%, while the 2-year and 30-year bond yields also rose.

If the trade situation between China and the United States escalates further, it may curb risk appetite and strengthen the market's demand for the safe-haven dollar.

Technical Outlook: US dollar index holds support, eyes October high

As of October 23, the US Dollar Index (DXY) has successfully tested its 50-day moving average (currently at 98.094), which held last Friday, confirming it as short-term support. Previously, the US Dollar Index broke through previous resistance levels such as 98.238, 98.714, and 98.797, which have now become layered support levels.


(Source of US Dollar Index daily chart: Yihuitong)

The upside opens the possibility of testing the October 9 swing high of 99.563. Traders are awaiting a catalyst, likely Friday's CPI data, to confirm a bullish continuation of the trend. A CPI reading that meets or exceeds expectations could propel the US dollar index further up toward this technical objective.

Market Outlook: USD maintains bullish bias ahead of CPI release

Given that the CPI data is expected to show inflation remaining above the Federal Reserve's 2% target and trade tensions have resurfaced, the market favors further dollar strength in the short term. The yen remains weak, and renewed inflation concerns may reinforce expectations for rate cuts but will not weaken demand for the dollar. If the CPI data meets expectations, it could be enough to extend the dollar index's recent gains.