US Dollar Rallies as US Inflation Report Alleviates Immediate Recession Fears

US Inflation Report (CPI) Review:

• Headline September US CPI missed expectations at 1.7% y/y, but given fears of an even deeper setback, traders are looking at the US inflation report as a relief.
• Disinflation in headline inflation may continue: the US Dollar is near its yearly high, energy prices have come down in recent weeks, and the ever-present US-China trade war continues to sap economic growth.
• The US Dollar rallied following the release as Fed rate expectations discounted slightly lower odds of action by the FOMC later this month.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

US economic data is holding sway over FX markets as traders take a reprieve from the intense US-China trade war headlines over the past 24-hours. Looking for clues for the October Fed meeting, the US inflation report had market participants on edge given growing fears of a US recession. It’s fairly typical to see low inflation coupled with low growth, after all.

The lack of a significant miss – the fear going into the data – may be helping drive the US Dollar rebound thereafter. Headline September US CPI missed expectations at 1.7% versus 1.8% expected (y/y), while US core CPI came in unchanged at 2.4% (y/y).

Disinflation in headline inflation may continue: the US Dollar is near its yearly high, energy prices have come down in recent weeks, and the ever-present US-China trade war continues to sap economic growth. The US Dollar rallied following the release as Fed rate expectations discounted slightly lower odds of action by the FOMC later this month.

Here are the data driving the US Dollar this morning:

- USD Consumer Price Index (SEP): 0.0% versus 0.1% expected, from 0.1% (m/m).

- USD Consumer Price Index (SEP): 1.7% versus 1.8% expected, from 1.7% (y/y).

- USD CPI ex Food & Energy (SEP): 0.1% versus 2.1% expected, from 0.3% (m/m).

- USD CPI ex Food & Energy (SEP): 2.4% as expected, from 2.4% (y/y).

See the DailyFX Economic Calendar for Thursday, October 10, 2019.

DXY Index Price Chart: 1-minute Timeframe (October 10, 2019) (Chart 1)

Following the inflation report, the US Dollar (via the DXY Index) continued its rebound from earlier in the day. The DXY Index initially rallied from 98.71 to as high as 98.81 following the release, but was trading back higher at 98.78 at the time this report was written.

Read more: US Dollar Gains Limited Ahead of FOMC Minutes - Key Levels for DXY Index & USD/JPY

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides