The U.S. dollar index climbed about 0.40% while the Japanese yen dropped 0.3% following a stronger-than-anticipated September consumer price inflation report. Headline CPI rose 3.7% year-over-year, exceeding Wall Street's forecast of 3.6%. On a monthly basis, CPI increased 0.6%, matching expectations. Core CPI, which excludes volatile food and energy prices, grew 2.6% from September 2025, slightly above the predicted 2.5%.
The likelihood of an October 28 quarter-point hike in the fed funds rate surged to 43.7% from 22.1% the previous day, according to CME's FedWatch tool. There is now a greater than 95% chance of at least one rate hike before the year's end, with a 40% probability of a half-percentage point increase.
Earlier, the euro gained slightly after European Central Bank President Christine Lagarde ruled out intervention to support France's struggling bond market. However, Brent crude prices at $106 per barrel limited the euro's upward movement. Attention now turns to speeches by Fed officials Thomas Barkin and Michelle Bowman, along with the Fed's monthly Beige Book release.
Roberto Mialich, an FX strategist at Unicredit, warned that if U.S. CPI hits 4% or core CPI rises further, it could lead to higher yields and a stronger dollar, potentially pushing the euro below $1.1152. The dollar had weakened on Tuesday following dovish remarks from New York Fed President John Williams and Fed Governor Christopher Waller.
Global finance leaders are gathered in Bangkok for the International Monetary Fund and World Bank annual meetings. IMF fiscal affairs chief Rodrigo Valdes emphasized the urgency of government debt reduction, while IMF Managing Director Kristalina Georgieva urged the U.S. to make fiscal adjustments to manage its debt sustainably. French bonds have been heavily impacted by a global selloff, with concerns over political instability ahead of next year's presidential election.
Lagarde advised France to address its debt issues through fiscal consolidation, dispelling speculation about ECB bond purchases. Mialich noted that the euro could test $1.10 in the near term but expects U.S. bond yields to ease by year's end, though euro zone challenges may continue to weigh on the currency. Meanwhile, British finance minister John Healey is reportedly planning to fund new budget giveaways through higher taxes or spending cuts rather than additional borrowing, contrary to IMF recommendations.