Markets rethink Fed rate hike expectations as US CPI is set to ease in October

For October, forecasts point to a 0.3% MoM increase in the US Consumer Price Index.
From September’s 0.3%, monthly core CPI inflation is projected to ease to 0.2%.
The US Dollar’s near-term valuation could be shaped by the inflation release alongside geopolitical developments and equity market movements.

The US Dollar (USD) could react as investors review the Federal Reserve’s (Fed) interest-rate outlook following Tuesday’s October Consumer Price Index (CPI) release from the US Bureau of Labor Statistics (BLS).

For most CPI series, this release will omit 12-month percentage changes. Monthly data for October 2025 are unavailable because collection did not take place during the government shutdown from 1 October 2025 to 12 November 2025.

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In a press release, the BLS explained: “For most CPI series, BLS could not publish October 2025 indexes. As a result, BLS will not publish 12-month percent changes for October 2026 for indexes where October 2025 data are not available,”

After September’s 0.6% monthly rise, headline CPI is projected to increase by 0.3%. Core CPI, meanwhile, is expected to advance by 0.2%, against 0.3% in the preceding month.

A clear slowdown in the forthcoming US inflation figures is expected by economists at Deutsche Bank. Their forecast is for “headline CPI [is] to rise by 0.20% month-on-month, down from 0.65% previously, with core CPI also up 0.20% after 0.33% last time.” Even with the softer readings anticipated, the bank’s economists “continue[s] to expect 25bp rate increases at the December and March FOMC meetings, absent a further material tightening in financial conditions.”

Economic Data Indicator

Consumer Price Index (MoM)

To track inflationary or deflationary trends, the prices of a representative basket of goods and services are added together at regular intervals and reported as the Consumer Price Index (CPI). Compiled monthly, the CPI data are published by the US Department of Labor Statistics. The MoM reading compares goods prices in the reference month with those in the preceding month. As a key inflation gauge, CPI also helps measure shifts in purchasing trends. A higher reading is generally considered bullish for the US Dollar (USD), whereas a lower reading is regarded as bearish.

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Next publication: Tue, 10 Nov 2026 13:30

Release frequency: Every month

Consensus estimate: 0.3%

Previous reading: 0.6%

Data source: US Bureau of Labor Statistics

Why should traders pay attention?

Traders face the prospect of continued aggressive action by the US Federal Reserve (Fed) as it seeks to contain inflation. Price stability and maximum employment form the central bank’s dual mandate, under which inflation should run at around 2% YoY. Since the pandemic, however, inflation has remained the weakest pillar of that mandate, a problem that persists today. Supply-chain disruptions and bottlenecks continue to fuel price pressures, leaving the Consumer Price Index (CPI) at multi-decade highs. Having already acted to curb inflation, the Fed is expected to retain its aggressive stance for the foreseeable future.

Could the US Consumer Price Index report shift EUR/USD?

Markets are currently pricing in roughly an 80% probability of another 25 basis points (bps) increase in the Federal Reserve’s (Fed) policy rate at its final meeting of the year, according to the CME FedWatch Tool.

After the Fed held interest rates in the 3.75%-4.00% range in October, Chair Kevin Warsh told a news conference that labour market conditions were “positive,” with policymakers’ discussions centred largely on the price stability mandate. Further evidence of labour market resilience came from October’s employment report: Nonfarm Payrolls (NFP) increased by 165K, while the Unemployment Rate fell to 4.1% even as the Labour Force Participation Rate edged higher.

Optimism over a diplomatic solution to the Middle East conflict, following the Republicans’ defeat in the midterm elections, drove a steep decline in crude oil prices last week. That latest decline will not feed into October’s inflation data. Nevertheless, a sizeable downside surprise in monthly CPI, at 0.1% or below, alongside a continued fall in energy prices could lead market participants to stop pricing in a December rate hike. Such an outcome could trigger sudden selling pressure on the US Dollar (USD), allowing EUR/USD to build bullish momentum in the near term.

By contrast, inflation matching or exceeding market forecasts, together with stalled ceasefire talks with Iran, could strengthen the case for an interest rate increase next month. Market positioning, however, indicates that the USD may have limited scope to advance under those circumstances, leaving EUR/USD vulnerable to only a brief bearish response.

Equity market movements could also shape the USD’s valuation and EUR/USD’s direction. Even if softer inflation readings support a cautious approach to Fed policy tightening, further selling in technology shares could underpin the USD and restrict gains in EUR/USD.

Risk sentiment remains a key condition for the US Dollar’s recent strength, according to ING strategists, who observe that “we think the dollar rally requires the risk-off mood to persist this week.” Acknowledging “some moderate correction risk” should market anxiety subside, they warn that “Friday’s move looked a bit too stretched relative to short-term market drivers,”. Nevertheless, ING still regards the wider backdrop, including the “macro story”, as supportive of the Dollar.

Setting out their inflation forecast, they add: “We expect tomorrow’s October US CPI to come in at 0.3% month-on-month for both headline (consensus 0.3%) and core (0.3%),” and say this result “should help cement expectations for a December Fed hike (19bp priced in), making the swap curve more protected from other equity market shocks.”

A brief technical assessment of EUR/USD comes from Eren Sengezer, European Session Lead Analyst:

“The EUR/USD pair has been moving in a relatively narrow channel since the beginning of October. During last week’s post-midterm elections rally, the Relative Strength Index (RSI) indicator on the daily chart recovered toward 50 but failed to clear this level, highlighting buyers’ hesitancy.”

“On the upside, 1.1260 (upper arm of the Bollinger Bands, static level) aligns as the first resistance level ahead of 1.1335 (50-day Simple Moving Average (SMA), static level) and 1.1410 (100-day SMA). Looking south, the first support level could be spotted at 1.1130 (lower arm of the Bollinger Bands, static level). If this support fails and gets confirmed as resistance, technical sellers could take action and open the door for an extended drop toward 1.1000 (static level, round level).”

EUR/USD daily chart — Daily price chart: EUR/USD

Key questions on inflation

What does inflation measure?

The increase in prices across a representative basket of goods and services is measured by inflation. Headline inflation is generally reported as a percentage change, both month-on-month (MoM) and year-on-year (YoY). By removing more volatile components, including food and fuel, core inflation strips out items whose prices can swing with geopolitical developments and seasonal factors. Economists concentrate on this core measure, which is also the level central banks target under their mandate to maintain manageable inflation, typically around 2%.

What does the Consumer Price Index (CPI) track?

Changes in the prices of a basket of goods and services over time are tracked by the Consumer Price Index (CPI). These are generally presented as percentage changes on both a month-on-month (MoM) and year-on-year (YoY) basis. Central banks target Core CPI, which removes volatile food and fuel components. A rise in Core CPI above 2% typically leads to higher interest rates, while a decline below 2% usually has the reverse effect. As higher interest rates support a currency, rising inflation generally strengthens it; falling inflation tends to have the opposite impact.

How does inflation affect currency values?

A country’s currency tends to appreciate when inflation is high and weaken when inflation is low, a relationship that may initially seem counter-intuitive. The explanation lies in the central bank’s usual response: raising interest rates to tackle higher inflation. Those higher rates attract additional global capital from investors seeking an attractive return on their money.

Why do inflation changes matter for Gold prices?

Investors historically sought Gold during periods of high inflation because it retained its value. Although its safe-haven appeal still draws buyers during severe market turmoil, this pattern does not hold in most circumstances. High inflation prompts central banks to raise interest rates to bring it under control. For Gold, higher interest rates are a headwind: they raise the opportunity cost of holding the metal rather than an interest-bearing asset or money in a cash deposit account. Conversely, lower inflation generally favours Gold by bringing interest rates down and making the precious metal a more attractive investment alternative.