US September inflation came in above expectations and sharply changed the picture on the currency market. Headline CPI accelerated to 3.7% year over year versus a forecast of 3.6% and 3.4% a month earlier. Month over month, prices rose by 0.6%.
Core inflation also came in above forecast
Core CPI excluding food and energy accelerated to 2.6% year over year. The market expected 2.5%. This is the indicator the Fed uses to assess sustained inflationary pressure. The stronger data forced the market to quickly revise its expectations for the future path of the rate.
DXY hit a new high
The dollar index DXY added about 0.46% after the release and rose to 102.84. This is the highest level since April 2025. The dollar strengthened against virtually all major currencies. The main reason is growing expectations that the Fed may continue its tightening cycle.
The euro fell to a 17-month low
EUR/USD lost about 0.55% and dropped to 1.1135. This is the lowest level since May 2025. The dollar's rise intensified amid the divergence in rate expectations between the US and the eurozone. The higher the market estimates the future Fed rate, the more support the American currency receives.
What happened with the pound and the yen
GBP/USD declined by about 0.52%, to 1.3185. This is the lowest since June 2026. USD/JPY, on the contrary, rose by about 0.36%, to around 158.90. The pair has again approached recent highs.
Why the reaction was so strong
The key move happened in the bond market. The yield on 10-year US Treasuries rose by more than 10 basis points, to 5.30%. Rising yields make dollar assets more attractive and boost demand for the American currency.
How rate expectations changed
The probability of a 25 basis point rate hike at the Fed meeting on October 27-28 rose to about 50%. Before the CPI release, the market estimated it at about 22%. The probability of another hike in December is estimated at around 44%. That is, strong inflation has brought the scenario of further tightening back into focus.
What's next
On Thursday, UK statistics on GDP and industrial production will be released. On Friday, the market will receive the final estimate of eurozone inflation. These data could strengthen or weaken the divergence between expectations for the rates of the Fed, the Bank of England and the ECB. For EUR/USD, the main factor remains the strength of the US dollar.
Caught this euro dump?
EUR/USD moved about sixty pips in a single session after the CPI release. For a prop trader, not only the idea itself matters, but also the available trading nominal. In prop trading, the trading account is provided by a third-party company after passing a paid challenge, and profits are distributed according to pre-established conditions. It's worth understanding the mechanics in advance, before the next major inflation release.