Dollar Holds Steady Amid Softer-Than-Expected Inflation Data

The US dollar remained unchanged against major currencies on September 30 after a smaller-than-expected increase in US inflation, which reduced market bets on an interest rate hike from the Federal Reserve. The greenback had been strengthening alongside rising US Treasury yields amid growing expectations of more Fed rate hikes driven by inflation.

However, with the release of softer-than-expected inflation data, the dollar pared some of its gains before recovering as US Treasury yields fell initially across the board. The 2-year note yield dropped to 4.885%, reflecting lower expectations of an October rate hike.

'We can't tell if the revised PCE data by itself or if other factors were responsible for a softer-than-expected print, which initially caused bonds to rally and yields to come down and the dollar to weaken,' said John Velis, FX and macro strategist at BNY. 'The curve is steeper with some strong GDP data.'

US Commerce Department data showed that the Personal Consumption Expenditures Price Index rose 0.3% last month, below economists' forecast of a 0.4% increase.