US Dollar Surges After CPI Report Comes in Stronger Than Expected

The US dollar is trading close to 2021 highs early on Thursday following the release of a strong inflation report in the previous session, driving up expectations in the markets for faster rate hikes by the Fed. At the time of writing, the US dollar index DXY is trading at around 94.91.

The headline US CPI soared to 6.2% YoY in October, marking the highest pace of increase seen in over three decades, and coming in stronger than the previous month’s reading of 5.4%. On a monthly basis, CPI spiked by 0.9% MoM, higher than economists’ forecast for a jump by 0.6% MoM instead.

The higher than expected inflation readings drove up the greenback and sent other major currencies on a bearish track, causing EUR/USD to crash by 1% and fall to the lowest levels seen since July 2020. Meanwhile, GBP/USD fell by 1.2% to the lowest levels since December 2020 while safe haven USD/JPY strengthened by 0.8%.

The US dollar’s bullishness also impacted emerging market currencies, causing MSCI’s EM currencies index to fall to the lowest levels in two months. The sharp spike came as a result of an uptick in US Treasury yields following the release of the inflation data, as investors raised expectations for the Fed to announce a rate hike sooner than planned, even though officials have previously played down such sentiments.

Analysts foresee a high likelihood of the Fed intervening in case the dollar index surges past the key 95 level on worries of persistently high inflation. A rate hike by the Fed could serve to cool down the inflationary pressures and prevent the economic recovery underway in the US from weakening on account of the price rise.

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Aiswarya Gopan

Financial Writer & Editor - Asia & Europe Desk

Aiswarya Gopan is a financial journalist, editor, and content strategist with more than 19 years of experience across financial markets, fintech, blockchain, and technology. She has worked with leading cryptocurrency exchanges, including BingX and KuCoin, driving content strategy, market research, and editorial initiatives covering digital assets, DeFi, Web3, and global financial markets. Drawing on a background in cybersecurity, technology journalism, and market research, Aiswarya specializes in translating complex financial and blockchain developments into clear, timely insights. At FX Leaders, she covers cryptocurrency, stocks, forex, and macroeconomic developments across the Asian and European trading sessions.

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