Dollar steadies ahead of US inflation data, traders reassess rate outlook

The greenback recovered support after recent volatility, with October consumer prices expected to influence Federal Reserve rate expectations and currency movements.

The US dollar held broadly steady on Tuesday as currency markets awaited fresh inflation data that could strengthen expectations of further Federal Reserve interest-rate increases. After several volatile sessions, investors were reassessing the balance between rising US borrowing costs, improving appetite for riskier assets and uncertainty surrounding the global economic outlook.

The dollar had weakened on Monday as falling oil prices and gains in equity markets encouraged investors to move towards riskier assets. The Australian and New Zealand dollars benefited from the shift in sentiment, while the euro recovered from its previous session’s decline. The dollar subsequently found support ahead of the US consumer price index (CPI) release, according to Reuters.

Economists surveyed by Reuters expect US headline inflation to rise to 3.9% year-on-year in October, while core inflation is forecast at 2.8%. A reading above those expectations could reinforce market bets on higher interest rates and provide further support to the dollar.

An unexpectedly strong US employment report released on Friday had already shifted expectations towards monetary tightening. Hiring was more than twice the market forecast, and traders were pricing in an 85% probability of a Federal Reserve rate increase in December, according to the Reuters report.

Markets have also priced in two US rate increases by the middle of next year. Imre Speizer, a strategist at Westpac in Auckland, said the immediate scope for additional pricing of a December move was limited, although expectations for subsequent meetings could still rise.

The relationship between inflation and currency markets is central to the current movement. Higher inflation can encourage expectations of tighter monetary policy, potentially increasing the relative return on dollar-denominated assets. However, the eventual direction of the currency will also depend on the Federal Reserve’s assessment of inflation, employment and economic growth.

The dollar’s recent movements have also reflected concerns about the economic implications of the US midterm election results. A Democratic-controlled Congress could introduce tighter regulation affecting artificial intelligence companies and potentially slow the expansion of data-centre infrastructure.

Those concerns contributed to volatility in technology stocks and raised questions about the outlook for US growth in 2027. Macquarie strategists Thierry Wizman and Gareth Berry said the possibility of slower growth could eventually place a ceiling on further dollar appreciation.

The uncertainty creates competing pressures for the currency. Higher inflation and interest-rate expectations may support the dollar, while concerns about investment, regulation and future growth could limit its gains.

The euro rose 0.7% on Monday to around $1.1220, reversing a decline recorded on Friday after stronger US employment figures lifted the dollar. The euro-dollar pair had consequently returned towards the middle of the trading range it had maintained over the previous month.

The Australian dollar gained nearly 1% during Monday’s session, reaching approximately $0.6918, while the New Zealand dollar advanced to around $0.5634. Both currencies remained relatively steady during the Asian trading session on Tuesday.

The New Zealand dollar received additional support from election results suggesting that the incumbent three-party coalition would remain in power. The outcome reduced uncertainty over possible changes to the central bank’s mandate.

Sterling traded around $1.3441, remaining within a range it had occupied for approximately 18 months. The currency has received support since the Bank of England raised interest rates for the first time in three years last week.

The Japanese yen hovered around 158 per dollar, supported by expectations that Japanese authorities could intervene again to prevent further depreciation.

Japan’s currency had been the strongest-performing Group of 10 currency against the dollar over the preceding six months, partly because of official intervention. Figures released on Monday showed that Japan had sold $97 billion in foreign-exchange reserves while defending the yen through late July and August, as the currency approached its weakest levels against the dollar in four decades.

Although expectations of a Japanese interest-rate increase in December had recently weakened, the possibility of further intervention continued to provide support for the yen.

The October CPI report is likely to be an important near-term test for currency markets. An inflation reading above forecasts could strengthen expectations of Federal Reserve rate increases and reinforce demand for the dollar. A softer result, by contrast, could reduce pressure for monetary tightening and encourage investors to reassess their positions.

Beyond the immediate data release, the dollar’s direction will depend on how inflation, employment, energy prices and US growth expectations evolve. The currency is facing competing forces: monetary tightening may support its value, while political uncertainty and concerns about investment could restrain further gains.

For investors, the central question is whether inflation will remain persistent enough to justify additional rate increases—or whether the recent strength in employment and earlier energy-price pressures will prove temporary.

Sources

• Reuters — Dollar sellers hit pause for US inflation data, by Tom Westbrook, 10 November 2026.