Inflation data fell short of expectations, triggering a slight correction in the US dollar, which is likely to remain strong in the near term.
2025-10-27 18:24:09
The US dollar index was trading around 98.80 during the European trading session on Monday (October 27), fluctuating slightly downward. Due to the relatively mild inflation data released last Friday, the market expected the United States to cut interest rates, and the US dollar index weakened further.
"Looking ahead, we believe the US dollar is likely to remain firm in the near term," said Mahjabin Zaman, head of FX research at ANZ. "The rate cuts from the Fed's October and December meetings are fully priced in. Therefore, if anything, any cautious rhetoric from the Fed is likely to be more bullish for the US dollar."
Inflation data weighs on short-term dollar sentiment
Weak inflation data weighed on short-term sentiment for the dollar, with traders adjusting their positions ahead of the release of several key U.S. economic data this week. The preliminary U.S. manufacturing Purchasing Managers' Index (PMI) came in at 52.2, while the preliminary services PMI unexpectedly rose to 55.2, suggesting underlying resilience in the U.S. economy despite slowing price growth.
The market generally expects the Federal Reserve to cut its benchmark interest rate by 0.25 percentage points from 4.25% to 4.00% on Wednesday due to weaker-than-expected inflation data. According to data released by the Bureau of Labor Statistics on Friday, the U.S. Consumer Price Index rose 3.0% year-on-year in September, compared to the previous increase of 2.9%. This figure was lower than the market expectation of 3.1%.
Meanwhile, the core CPI rose 3.0% year-on-year in September, compared to 3.1% in August; this increase was lower than the market expectation of 3.1%. On a month-on-month basis, the CPI rose 0.3% in September after rising 0.4% in August; the core CPI rose 0.2% month-on-month, lower than the market consensus of 0.3%.
The ripple effects of US sanctions on Russian oil producers
ING believes another area of concern is the ripple effect of US sanctions on Russian oil producers. Reports indicate that some Indian and Chinese refiners are considering halting Russian oil imports. If Russian oil supplies were to decline significantly (which was not the case during previous sanctions), Brent crude prices would likely return to the $70 to $75 per barrel range.
These price levels do have the potential to trigger a significant appreciation of the US dollar. So far, the impact of the oil price surge on the foreign exchange market has been particularly evident in the rise of the Norwegian krone, while also putting additional pressure on the Japanese yen.
Impact of Sino-US trade
U.S. Treasury Secretary Jeffrey Bessant said trade talks during the ASEAN summit in Kuala Lumpur, Malaysia, ruled out 100% tariffs on Chinese imports starting November 1. Bessant also said he expected China to delay the implementation of a licensing system for rare earth minerals and magnets by one year while it reviews its policies.
Optimism surrounding U.S.-China trade talks has eased concerns about a trade war between the world's two largest economies.
Trump is due to meet with Chinese President Xi Jinping later on Thursday to discuss the outlines of a trade deal.
Upcoming key events in the United States
This week’s economic calendar includes several high-impact indicators that could set the tone for the US dollar.
On Tuesday, traders will be watching the Richmond Manufacturing Index and the Conference Board (CB) Consumer Confidence Index for the latest information on business and consumer sentiment.
Market focus will then shift to Wednesday's Federal Open Market Committee (FOMC) meeting, where the Fed is widely expected to cut interest rates by 25 basis points to 4.00%. Markets will closely monitor Chairman Powell's press conference for guidance on future easing policy.
Later this week, the preliminary estimate of U.S. gross domestic product (GDP) will be released on Thursday, with an expected increase of 3.0%, while the core personal consumption expenditures (CorePCE) and employment cost index data will be released on Friday.
The release of these data will jointly determine whether the US dollar can hold the support level around 98.70 against the backdrop of changing interest rate expectations, or continue to expand its recent correction.
Technical Analysis
(Source: 4-hour chart of the US dollar index: Yihuitong)
The US Dollar Index (DXY) is currently trading around 98.80, consolidating within a symmetrical triangle pattern, with traders awaiting a breakout signal. The 50-period exponential moving average (50-EMA, 98.83) and the 200-period exponential moving average (200-EMA, 98.43) have flattened, reflecting a wait-and-see approach following recent volatility. Support lies at 98.70 and 98.38, respectively, while resistance lies around 99.14.
If the US dollar index breaks through the upper boundary of the triangle, the price could push towards 99.54. A break below 98.38 could trigger selling pressure, pushing the price towards 98.01. The Relative Strength Index (RSI) is currently around 45, indicating balanced bullish and bearish momentum, with no clear dominant position.
"Looking ahead, we believe the US dollar is likely to remain firm in the near term," said Mahjabin Zaman, head of FX research at ANZ. "The rate cuts from the Fed's October and December meetings are fully priced in. Therefore, if anything, any cautious rhetoric from the Fed is likely to be more bullish for the US dollar."
Inflation data weighs on short-term dollar sentiment
Weak inflation data weighed on short-term sentiment for the dollar, with traders adjusting their positions ahead of the release of several key U.S. economic data this week. The preliminary U.S. manufacturing Purchasing Managers' Index (PMI) came in at 52.2, while the preliminary services PMI unexpectedly rose to 55.2, suggesting underlying resilience in the U.S. economy despite slowing price growth.
The market generally expects the Federal Reserve to cut its benchmark interest rate by 0.25 percentage points from 4.25% to 4.00% on Wednesday due to weaker-than-expected inflation data. According to data released by the Bureau of Labor Statistics on Friday, the U.S. Consumer Price Index rose 3.0% year-on-year in September, compared to the previous increase of 2.9%. This figure was lower than the market expectation of 3.1%.
Meanwhile, the core CPI rose 3.0% year-on-year in September, compared to 3.1% in August; this increase was lower than the market expectation of 3.1%. On a month-on-month basis, the CPI rose 0.3% in September after rising 0.4% in August; the core CPI rose 0.2% month-on-month, lower than the market consensus of 0.3%.
The ripple effects of US sanctions on Russian oil producers
ING believes another area of concern is the ripple effect of US sanctions on Russian oil producers. Reports indicate that some Indian and Chinese refiners are considering halting Russian oil imports. If Russian oil supplies were to decline significantly (which was not the case during previous sanctions), Brent crude prices would likely return to the $70 to $75 per barrel range.
These price levels do have the potential to trigger a significant appreciation of the US dollar. So far, the impact of the oil price surge on the foreign exchange market has been particularly evident in the rise of the Norwegian krone, while also putting additional pressure on the Japanese yen.
Impact of Sino-US trade
U.S. Treasury Secretary Jeffrey Bessant said trade talks during the ASEAN summit in Kuala Lumpur, Malaysia, ruled out 100% tariffs on Chinese imports starting November 1. Bessant also said he expected China to delay the implementation of a licensing system for rare earth minerals and magnets by one year while it reviews its policies.
Optimism surrounding U.S.-China trade talks has eased concerns about a trade war between the world's two largest economies.
Trump is due to meet with Chinese President Xi Jinping later on Thursday to discuss the outlines of a trade deal.
Upcoming key events in the United States
This week’s economic calendar includes several high-impact indicators that could set the tone for the US dollar.
On Tuesday, traders will be watching the Richmond Manufacturing Index and the Conference Board (CB) Consumer Confidence Index for the latest information on business and consumer sentiment.
Market focus will then shift to Wednesday's Federal Open Market Committee (FOMC) meeting, where the Fed is widely expected to cut interest rates by 25 basis points to 4.00%. Markets will closely monitor Chairman Powell's press conference for guidance on future easing policy.
Later this week, the preliminary estimate of U.S. gross domestic product (GDP) will be released on Thursday, with an expected increase of 3.0%, while the core personal consumption expenditures (CorePCE) and employment cost index data will be released on Friday.
The release of these data will jointly determine whether the US dollar can hold the support level around 98.70 against the backdrop of changing interest rate expectations, or continue to expand its recent correction.
Technical Analysis
(Source: 4-hour chart of the US dollar index: Yihuitong)
The US Dollar Index (DXY) is currently trading around 98.80, consolidating within a symmetrical triangle pattern, with traders awaiting a breakout signal. The 50-period exponential moving average (50-EMA, 98.83) and the 200-period exponential moving average (200-EMA, 98.43) have flattened, reflecting a wait-and-see approach following recent volatility. Support lies at 98.70 and 98.38, respectively, while resistance lies around 99.14.
If the US dollar index breaks through the upper boundary of the triangle, the price could push towards 99.54. A break below 98.38 could trigger selling pressure, pushing the price towards 98.01. The Relative Strength Index (RSI) is currently around 45, indicating balanced bullish and bearish momentum, with no clear dominant position.
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