USD surges as market prices out rate cuts following strong inflation
Explore the impact of unexpected US inflation and potential Fed rate decisions on the dollar's strength. Learn how these factors can influence forex markets and trading strategies moving forward.
Key Points
- US inflation rate at 2.4%, above forecast of 2.3%
- Core inflation rose 0.1%, exceeding expected 3.2%
- Odds of no Fed rate cut in November increased to 11.6%
- Dollar index surged past 102.9, reaching a monthly high
- USD/CAD hit a record high of 1.37685
US Inflation Higher Than Expected
The annual inflation rate in the US has decelerated to 2.4%, yet it remains 0.1% above the predicted rate of 2.3%, indicating persistent inflationary pressures. Furthermore, core inflation, which excludes volatile components like food and energy, has increased by 0.1% this year, exceeding the expected 3.2%. These figures suggest that underlying inflation trends may be more ingrained than previously thought, prompting close observation from central banks.
Bond Market Pricing in Fewer Rate Cuts from the Fed
The probability of the Federal Reserve not implementing rate cuts in November has risen to 11.6%. If the Fed maintains or raises interest rates, the US dollar could strengthen, attracting foreign investment seeking higher returns compared to lower-yielding currencies. However, if the Fed proceeds with significant rate cuts as previously anticipated, the dollar might weaken as investors opt for alternatives.
US Dollar Continues Its Bullish Run
In spite of a volatile morning following the inflation data release, the US dollar has sustained its bullish trend, with the dollar index surpassing 102.9—a monthly high. The greenback has also gained against several major currencies; the pound has dropped to 1.30285 against the dollar, while the euro has fallen to 1.09187. Additionally, USD/CAD has reached a record high this morning at 1.37685.
What’s Next for US Dollar?
The US dollar's future trajectory appears robust, fueled by higher-than-expected inflation and adjusted expectations of rate cuts from the Fed. With inflation at 2.4% and core rates rising, the Fed might opt to hold off on cuts, bolstering the dollar's appeal to foreign investors. The dollar index's rise past 102.9 and its gains against currencies like the pound and euro suggest continued bullish momentum. Traders should keep an eye on Federal Reserve announcements and economic indicators to assess the dollar's ongoing strength and adjust their forex strategies accordingly.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understand key terms. Once your strategy is developed, you can follow the above steps to open an account and get started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing. Past performance is not indicative of future results.