Dollar Holds Near 18-Month High as Markets Brace for US Inflation Data

The US dollar starts the week close to its strongest level in about 18 months. The dollar index, which measures the greenback against six major currencies, was slightly lower at about 102.16 in Asian trading on Monday, according to Reuters, not far from the peak it set last week. Trading was thin: Tokyo is closed for a public holiday, and the US bond market is shut for Columbus Day.

Two things are keeping traders cautious. The first is Wednesday's US consumer price report, one of the last big data releases before the Federal Reserve meets on 27 and 28 October. The second is the Middle East. Reuters reported that Yemen's Iran-backed Houthis stepped up strikes on Saudi Arabian energy assets and that two tankers were attacked over the weekend. Brent crude was volatile, trading near $103 a barrel.

Why Wednesday's inflation report matters

The Bureau of Labor Statistics publishes September consumer prices on Wednesday 14 October at 8:30 a.m. Eastern time, 12:30 UTC. In August, the all-items index rose 0.4% on the month and 3.4% over the year. Gasoline did much of the work: it rose 3.9% in August and accounted for over a third of the monthly increase, and the energy index was up 16.3% from a year earlier.

Underlying inflation looks calmer. The index excluding food and energy rose 0.3% in August and 2.4% over the year, down from 2.5% in July. That split matters for the Fed: an oil-driven rise in headline inflation is harder to fight with interest rates than broad price pressure, but officials have made clear they do not want higher energy costs to feed into wages and other prices.

Producer prices follow on Thursday, also at 8:30 a.m. Eastern time. Together, the two reports will show whether the energy shock is spreading further down the supply chain.

What markets expect from the Fed

The Fed raised its target range by a quarter point to 3.75% to 4.00% on 16 September, and minutes of that meeting showed most officials expect another increase by year end. Markets do not expect it this month. Reuters reported that CME FedWatch put the chance of the Fed holding rates in October at 81%, up from 51% a month earlier.

That leaves CPI as the swing factor. Chris Weston, head of research at Pepperstone, told Reuters it is "a very high bar for the Fed to raise rates in October", but said a hot number could bring forward bets on a December hike and possibly another in January. A soft reading would do the opposite, and the dollar's recent gains would be exposed.

How the major currencies are trading

UTC daily closes built from hourly market data; levels differ slightly between providers.

The euro is the weakest of the majors. It lost 51 pips last week, its fifth weekly loss in a row, and it trades close to the 1.1166 low it touched last Monday. Worries over French public finances are part of the reason: Reuters reported that the gap between French and German 10-year yields had widened to 137 basis points, near its widest since 2012. Sterling has held up better, ending last week almost unchanged at 1.3233, while USD/JPY hovers just below 158.50 as warnings from Tokyo limit the upside.

Outside the majors, the Indian rupee rose about 1% to around 95.8 per dollar on Monday, Reuters reported, after the Reserve Bank of India moved state oil companies' dollar purchases away from the open market. South Korea's won reached a two-year high.

Treasury yields and oil

Long-dated US yields remain the dollar's main support. Treasury data show the 10-year yield at 5.24% on Friday 9 October and the 30-year at 5.60%, down from 5.67% on 7 October, which was the 30-year's highest close this year. Higher yields make dollar assets more attractive to foreign investors, which helps explain why the currency has held up even as some US data has softened.

Oil adds to the pressure. Each new attack on Gulf energy facilities lifts the inflation outlook, and with it the chance that the Fed keeps raising rates. Commonwealth Bank of Australia analysts told Reuters they expect the Houthi attacks to continue, "supporting gains in the oil price and the USD".

How to trade the week

• Mark Wednesday 12:30 UTC and Thursday 12:30 UTC in your economic calendar; spreads can widen sharply in the minutes around each release.
• Cut position size before CPI, or close trades that sit close to their stops.
• Watch Brent crude and the 10-year yield next to EUR/USD; this month they have often moved first.
• Expect thin, uneven trading today while Tokyo and the US bond market are closed.
• Use the position size calculator so one trade risks no more than 1% to 2% of your account.

Our daily EUR/USD analysis, GBP/USD analysis and USD/JPY analysis carry today's levels and trade plans.

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Sources: US Bureau of Labor Statistics: Consumer Price Index, August 2026 · BLS release schedule, October 2026 · US Treasury: daily par yield curve rates · Reuters via Investing.com: Dollar stays near 18-month high, 12 Oct