Bullish Dollar Signals Emerge With Delayed CPI Release Looming
The dollar has kicked off the quarter on a firmer note, and there are signs traders are bracing for further bullish momentum before this week’s delayed release of US consumer-price data .
The greenback is stronger against nearly all of its major peers this month, benefiting in part from haven buying related to credit concerns around regional US banks. The advance has come amid a void of official economic data since the US government shutdown began Oct. 1.
The dearth of statistics adds to the focus on Friday’s release of the September’s consumer-price index, particularly with the Federal Reserve set to meet next week. Economists expect a year-on-year rate of 3.1%, the highest since May 2024. While a hot reading isn’t expected to deter policymakers from cutting interest rates on Oct. 29 and potentially again in December, it could impact their stance heading into next year.
“With two cuts fully priced for the Fed, the asymmetry on CPI is to the strong side and the flow asymmetry from here until month-end is buying the dollar,” Brent Donnelly , president of Spectra Markets, wrote in a Wednesday note. He recommends going long the dollar on a two-week horizon.
As Donnelly sees it, the risk is skewed toward a higher CPI reading. One reason is that Canadian inflation data reported this week rose more than projected, and he views that as a bellwether for a potential surprise in the US.
2025 Drop
The Bloomberg Dollar Spot Index is down about 7% this year, putting it on pace for the worst annual slide since 2017. The greenback weakened sharply in the first half of the year as President Donald Trump’s sweeping tariffs roiled markets and sparked speculation investors would shun US assets, eroding the dollar’s haven status. As it turned out, while there are signs foreigners are their dollar exposure, they’re still piling into US stocks and Treasuries.
The dollar has also lost some of its allure given the prospect the Fed will ease heading into next year amid weakness in the US labor market.
“All of that dollar weakness was really done in the first five months of the year,” Jane Foley , head of foreign-exchange strategy at Rabobank, told Bloomberg Surveillance on Wednesday. “Ever since, I keep on finding myself saying ‘The dollar isn’t weak, it’s been one of the better performers.’”
Options traders have also turned more optimistic on the greenback. Three-month risk reversals on the Bloomberg Dollar Spot Index have leaned toward bullish readings this month, with traders favoring call options that bet on a stronger dollar over the next three months.
Steven Englander , global head of G-10 FX research at Standard Chartered Bank, projects that the euro will decline to $1.12 by the middle of next year from about $1.16 now as the dollar recovers broadly. One reason is that he sees limited evidence of a flight from the dollar.
“The market is underestimating the risk of a dollar rebound,” Englander wrote in a note Wednesday. “We see less room for Fed cuts than the market, so the dollar is likely to get rates support.”
