EUR/USD and GBP/USD immediately plummeted, while AUD/USD and NZD/USD dropped more than 1.1 percent.

US inflation surged higher than market expectations in September 2023. The data supports the anticipation of the Fed keeping interest rates high for longer, causing the US Dollar Index (DXY) to rise by approximately 0.5% to the high 106.30s in the New York session on Thursday, October 12th.

us dollar index

The United States Consumer Price Index (CPI) increased by 0.4% (month-over-month) in September 2023 amid rising gasoline prices. This price growth was slower than the 0.6% in August but higher than the consensus estimate of 0.3%. As a result, the annual inflation growth remained stable at 3.7%.

The core CPI aligns with the Producer Price Index (PPI) report for the same period. US producer inflation data from yesterday also showed an acceleration beyond the consensus estimate, although it was slower than the previous month.

Core CPI data, which excludes volatile items like gasoline, still grew by 0.3% in September 2023. On an annual basis, the numbers continued to decrease from 4.3% in August to 4.1% in September. The Core figures are in line with consensus estimates.

Regarding the FOMC meeting minutes released earlier today, such inflation increases should influence the next decisions on Federal Reserve interest rates. As revealed in the minutes, "policy should remain restrictive for some time until the Committee is confident that inflation is sustainably moving toward its target." Analysts are also becoming more optimistic about the prospects for further interest rate hikes.

Daniel Vernazza, Head of International Economics at UniCredit Bank in London, suggested that the stronger payroll report last Friday, along with the current CPI report, implies that The Fed still has the potential to increase interest rates once more in either of the two remaining FOMC meetings this year.

This backdrop has triggered another surge in US Treasury yields, simultaneously bolstering the strength of the US dollar against various other major currencies. EUR/USD and GBP/USD immediately plunged by more than 0.6%, while AUD/USD and NZD/USD plummeted by over 1.1% instantly. USD/JPY also resumed its advance towards the crucial 150.00 threshold.