Dollar pops as hot inflation triggers rate hike fears

The U.S. dollar popped higher on Wednesday after languishing below its recent 18-month peaks earlier in the day as hotter inflation triggered rate hike fears among investors. 

The U.S. Dollar Index, which tracks the greenback against a basket of six major peers, jumped 0.5% to trade at 102.43. The jump comes after Tuesday’s 0.4% decline after the index touched its highest valuation since April 2025 earlier in the week.

Headline U.S. consumer price growth accelerated to 3.7% in the twelve months to September, up from 3.4% in August and faster than expectations of 3.6%.

Month-on-month, the closely-watched inflation gauge rose 0.6%, compared to 0.4% previously and in line with forecasts.

Euro rebounds to $1.1208 as Lagarde dashes French bailout hopes

The single currency caught a modest bid in European trade, edging up 0.1% to $1.1208 and recovering from multi-month lows near $1.1100.

The euro’s uptick came after European Central Bank President Christine Lagarde firmly played down speculation that Frankfurt would intervene to prop up France’s ailing sovereign bond market.

Speaking on the sidelines of the IMF and World Bank meetings to Reuters, Lagarde explicitly stated that Parisian lawmakers must address their projected 5.4% GDP budget deficit through domestic fiscal consolidation rather than expecting ECB backstops via emergency bond-buying tools.

While Lagarde’s refusal to act as a lender of last resort underlines ongoing fiscal risk in French paper, her hawkish refusal to expand the ECB’s balance sheet removed immediate fears of monetary dilution, offering technical support to the single currency.

Fed speakers turn dovish as markets await CPI and Beige book

The dollar’s retreat gained momentum following Tuesday’s remarks from New York Fed President John Williams and Fed Governor Christopher Waller, which markets interpreted as dovish.

Both officials highlighted the need to carefully calibrate future policy moves against tightening financial conditions and elevated 10-year Treasury yields lingering near 5.20%.

Economists expect headline inflation to accelerate to 3.6% year-on-year in September from 3.4% in August. Money markets currently price roughly a 78% probability that the Fed will leave interest rates unchanged at its late-October meeting, with an 85% chance of a final 25-basis-point hike in December.

Regional economic commentary from the Beige Book, along with upcoming speeches from Richmond Fed President Thomas Barkin and Governor Michelle Bowman, will be scrutinized for details on labor market absorption and corporate pricing power.

Yen consolidates; Sterling advances

The USD/JPY pair traded flat at 158.19, taking a breather as the pause in U.S. Treasury yields prevented further widening of the multi-year interest rate gap, though intervention fears from Japanese authorities remain active.

Sterling outperformed its European counterpart, advancing 0.15% to $1.3270 as firm domestic gilt yields and steady Bank of England policy expectations provided an underlying bid.