US inflation fails to lift the Dollar, 'AI wobbles' could weigh further on the greenback

Our call for a moderate core inflation print was not borne out, as core CPI rose 0.3% in September. Market pricing of an October Fed hike briefly spiked after the CPI report, then settled back as a couple of Fed officials signalled little urgency. We maintain our call for a hold this month, but expect the decision will be contested, and we will not see a repeat of last meeting unanimity.

Yet, with most data not screaming out for higher rates, and the US midterm elections around the corner, we think that the majority of the committee will be comfortable in holding fire until December.

We note that last week's price action suggests bad inflation news no longer seems able to push the dollar higher. If the AI correction deepens, its implications for US growth and investment are a clear negative for the greenback. Unlike the global bond rout of September, the AI wobbles are a US story, and so the flight-to-safety bid does not go to the dollar.