US Dollar: CPI outcome to steer Fed path – BBH

FXStreet Insights Team FXStreet

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) weakened on broad Japanese Yen strength before partially recovering as strong US August payrolls revived expectations for a September Fed hike. Haddad stresses that United States (US) August Consumer Price Index (CPI) and Producer Price Index (PPI) will be pivotal for the Federal Reserve’s (Fed) next move and for USD direction, with balanced risks suggesting potentially volatile price action.

US inflation data to drive USD

"USD fell last week, largely reflecting broad JPY strength after markets briefly repriced a more hawkish Bank of Japan. USD recovered some ground on Friday. The solid US August nonfarm payrolls revived bets of a September Fed funds rate hike, which New York Fed President John Williams and Fed Governor Christopher Waller had earlier tempered by highlighting the encouraging inflation trend."

"A September 16 Fed funds rate hike hinges on Friday’s US August CPI print. Fed Chair Kevin Warsh noted in his August Jackson Hole speech that he welcomed this summer’s better than expected PCE and CPI readings but cautioned “they do not tell me that underlying trends have meaningfully improved.” As such, a hot CPI print would all but seal a September hike and underpin a firmer USD."

"More importantly, even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs. Tightening by other major central banks limits policy divergence, with the ECB widely expected to deliver its second 25bps increase of the year on Thursday."

"Risks around the US August CPI print are finely balanced, setting the stage for an exceptionally volatile market reaction. The August pick-up in the ISM Prices Paid index suggests upside inflation risks have yet to recede. However, the continued slowdown in US average hourly earnings growth in August remains an important disinflationary force."

"The US August PPI (Thursday) will serve as a warmup act for Friday’s pivotal CPI report. Watch out for PPI Services less Trade, Transportation, and Warehousing as it partially feeds into the policy-relevant PCE calculation. Portfolio management fees could again distort PPI, although the BEA’s September 30 methodology change is poised to fix that."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD pulls back from monthly high but holds above 0.7000

AUD/USD retreats from the monthly high set earlier this Thursday, sliding back to 0.7000 during the Asian session as a further escalation of tensions in the Middle East undermines the risk-sensitive Aussie. However, recent hawkish comments from RBA officials could support the Australian Dollar. Furthermore, the prevailing US Dollar selling bias, despite Fed hike bets and geopolitical uncertainties, could limit losses for the pair.

USD/JPY declines to a one-week low; eyes trading range support near 157.50 on weaker USD

USD/JPY drops to a one-week low during Thursday’s Asian session, with bears now awaiting a break below multi-week range support near mid-157.00s before placing fresh bets amid a broadly weaker US Dollar. Despite bets for a December Fed rate hike and Middle East jitters, the recent decline in US bond yields keeps USD depressed near a three-week low. Moreover, hawkish BoJ expectations and intervention risks underpin the Japanese Yen, further weighing on the currency pair.

Gold recedes to fresh lows; bears target $4,000

Gold prices resume their decline on Thursday, easing toward the area of two-month lows around $4,050 per troy ounce. Higher crude oil prices have reignited speculation of further tightening by the Fed, supporting the US Dollar and weighing on the precious metal.

The estimates keep falling: Why Bitcoin's quantum countdown is accelerating

The threat that Artificial Intelligence (AI) and quantum computing pose to Bitcoin (BTC) and cryptocurrencies in general is no longer a matter of if hardware will catch up; it is a matter of when.

The Bank of England just got its clearest reason to hike. Here's what it's really watching

UK inflation as measured by the CPI accelerated to 3.5% YoY in September, up from 3.1% in August, according to the Office for National Statistics. This is the highest level since October 2025, exceeding economists' expectations of 3.4% and pushing inflation further from the BoE's 2% target.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.