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U.S. Dollar Rises Despite Rate Cut Bets Amid Sticky Inflation Data
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Inflation Remains Sticky, in Line with Expectations
On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased by 0.2% for the fourth consecutive month, aligning with economists’ expectations in a Reuters poll. Year-over-year, the CPI rose by 2.6% through October, up from 2.4% in September, also meeting forecasts. Following the report, the U.S. Dollar Index rose by 0.49%, closing at 106.48.
(U.S. CPI y/y and Core CPI y/y Chart, Source: LSEG)
(DXY Daily Price Chart, Source: Trading View)
The CPI data, especially the uptick in the 12-month rate, suggests that although the Fed is widely expected to reduce rates by 25 basis points at its December meeting, persistently high inflation could prompt a reassessment of its pace of easing in 2025. Since September, the Fed has implemented a total of one percentage point in rate cuts.
After the release, traders’ bets indicated an 82% probability of a 25 basis-point cut in December, up from 58.7% on Monday, according to CME Group’s FedWatch tool. While some Fed officials took a more cautious tone, Minneapolis Fed President Neel Kashkari expressed confidence that inflation was on a downward trend, noting the CPI data aligns with this trajectory.
However, significant uncertainty persists, especially given potential policy changes post-election. The market is making many assumptions about future policy direction, yet it remains uncertain where things will stand over the next one to two years.
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