Fed hold remains base case, September inflation surprise could push Dollar

The FOMC minutes read as hawkish last week, but they predate the soft September payrolls print and the modest inflation reads since then. We continue to think the Fed will hold rates this month, since we expect a moderate (i.e. 0.2% or less) monthly core print in this week's inflation report for September.

However, any upside surprise there would quickly lead markets to reprice higher the chances of an October hike and may push the dollar to break out of the range that has held since the summer of 2025.

Our base scenario calls for continued stabilisation in bond markets and a contained spillover effects from energy price spikes, which would remove a key support from the recent dollar rally.

Market participants will also have one eye on the midterm elections in early November, which could also be mildly bearish for the dollar should gridlock in Congress limit the ability of the US government to pass major spending or tax initiatives.