The moves
The US Dollar Index, which measures the dollar against six major currencies, closed Wednesday, October 14, at 102.53, up 0.3%, after an intraday peak of 102.95, according to Hong Leong Bank's daily market note. On Thursday it fell 0.4% to 102.16, Investing.com reported.
EUR/USD traded near 1.1210 on Thursday, heading for its largest one-day gain in nearly two months, Investing.com said, after closing Wednesday at 1.1157. FXStreet reported USD/JPY at 158.00, down 0.2%, after a weekly low of 157.58 in Asian trading. Quotes are from Thursday morning European time and will change through the US session.
Why the dollar reversed
September's CPI rose 3.7% from a year earlier, above the 3.6% expected, and initially pushed the index to its highest level since April 2025, FXStreet reported. The dollar then retreated as Treasury yields fell, Investing.com said, reflecting “conflicting signals between hotter-than-expected inflation data and dovish central bank rhetoric.” CNBC, publishing Reuters, attributed the fall to Fed officials curbing hike bets.
In Japan, officials renewed verbal warnings about currency moves, Investing.com reported, and Bank of Japan board member Junko Koeda said policy may need adjusting to contain upside inflation risks, according to FXStreet.
Other currencies and the analysts' view
Later Thursday in Asia, CNBC (publishing Reuters) put the euro at $1.1187, up 0.3% from an 18-month low, sterling at $1.3224 and the dollar index at 102.06. The yen was at 157.82, and the Australian dollar fell 0.3% to $0.6952 after an unexpected drop in Australian employment. Quotes from different sources reflect different times of day.
“Despite the whole CPI number coming slightly stronger than expected, I think markets have sort of taken the view that maybe it was not hot enough to force the Fed's hand for October,” said Khoon Goh, head of Asia research at ANZ, according to CNBC. He noted the October meeting falls a few days before the midterm elections. OCBC strategist Sim Moh Siong wrote that “the USD rally lacked punch as the retreat in Treasury yields after an initial jump softened the rates impulse.” Investing.com reported that ECB President Christine Lagarde's stance that France must address its budget deficit itself helped the euro.
Not every currency recovered equally on Wednesday. Hong Leong Bank's note said the Swedish krona fell 0.6% and sterling 0.5% to $1.3193 against the dollar, the latter as Bank of England chief economist Huw Pill cast doubt on market bets for four rate hikes by next summer. The same note gives the bank's own forecast range for the dollar index this week of 101 to 104; that is a forecast, not an observation.
What would make it last
Analysis: The reversal rests on lower US yields rather than on a change in the inflation data. A lasting decline would likely need yields to stay lower, for example if upcoming US data or Fed speakers further reduce the odds of an October hike. A renewed rise in yields would remove that support. These are conditions, not forecasts.
What to watch: Thursday's US producer-price, retail-sales and jobless-claims data, Fed speakers ahead of the October 27-28 meeting, and any Japanese action on the yen.