The US dollar pulled back from an 18-month high on Thursday, despite stronger-than-anticipated inflation data. The core consumer price index (CPI) rose 0.3% in September, exceeding economist forecasts of a 0.2% increase. The annual core CPI rose 2.6%, while the headline rate increased 3.7%, both higher than expected. The data briefly boosted expectations of a Federal Reserve rate hike in October to 50%, but the dollar's rally lost momentum as Treasury yields retreated.
Federal Reserve officials, including Vice Chair for Supervision Michelle Bowman and San Francisco Federal Reserve Bank President Mary Daly, suggested the central bank could wait for more clarity before making a move. Traders scaled back their October rate hike bets, contributing to the dollar's decline. Khoon Goh, head of Asia research at ANZ, noted that the market was cautious due to the upcoming midterm elections.
The dollar index, which tracks the US currency against a basket of peers, fell 0.1% to 102.06, reversing most of its gains from Wednesday. The euro rose 0.3% to $1.1187, while sterling strengthened 0.2% to $1.3224. The US 10-year Treasury yield dropped to a three-week low of 5.1267%, and the 30-year yield stood at 5.4795%.
Elsewhere, the Australian dollar declined 0.3% to $0.6952 following a surprise drop in local employment. The Japanese yen gained around 0.3% to 157.82, and the offshore yuan strengthened slightly to 6.6916 per dollar after data showed rising factory-gate inflation in China. Attention now turns to US producer price and retail sales data for further market direction.