US September Core CPI Exceeds Expectations, Bolstering Fed Rate Hike Speculation
| Pair | Now | Since publish |
|---|---|---|
| EURUSD | — | — |
| USDCHF | — | — |
- US September CPI hotter than expected; core up 0.3% MoM.
- Markets price ~40% October Fed hike; Citi sees December.
- USD surges to 102.85; “higher-for-longer” path reinforced.
- Goolsbee calls data “discouraging”; Beige Book notes diesel pressure.
The US Consumer Price Index (CPI) for September revealed headline inflation increased 0.6% month-over-month and 3.7% year-over-year, slightly above the 3.6% annual forecast. More significantly, core CPI, which excludes volatile food and energy prices, rose 0.3% month-over-month and 2.6% year-over-year, surpassing the 0.2% and 2.5% expectations, respectively. This hotter-than-anticipated core reading was primarily driven by increases in shelter, energy, airfares, and used vehicles. Following the data release, market participants increased the probability of a Federal Reserve rate hike in October to 47%, up from 21% prior to the report, with 36 basis points of tightening now priced in for the remainder of the year. This shift in expectations has provided support for the US Dollar, as traders assess the implications for the Fed’s monetary policy outlook.
Following hotter-than-expected US inflation data, the US Dollar (USD) strengthened significantly, with the US Dollar Index (DXY) climbing toward 102.85, its strongest level since April 2025. The USD/CHF pair rose to 0.8390, reaching its highest level since May 2025, while the Mexican Peso depreciated, pushing USD/MXN to 18.51 and a high of 18.60. These movements were driven by reinforced expectations of further Federal Reserve (Fed) interest rate hikes, with some market participants now anticipating a move at the October meeting. September’s headline CPI was reported at 3.7% year-over-year (up from 3.4%) and 0.6% month-over-month, exceeding estimates.
Following the inflation data, Chicago Fed President Austan Goolsbee described the CPI as “discouraging,” while the latest Beige Book flagged diesel-fuelled price pressure impacting freight, farming, and airfares, raising concerns about second-round inflation effects. Markets are now pricing close to a 40% chance of a Fed rate hike at the October 27-28 meeting, despite some officials previously guiding expectations toward December. Notably, Citi has shifted its forecast to anticipate a December Fed rate hike, removing one of the last prominent holdouts against such a move. This reinforces a “higher-for-longer” interest rate path, with expectations for rate cuts now pushed out to mid-2027, continuing to support US Treasury yields and the US Dollar, while keeping mortgage rates under upward pressure and weighing on rate-sensitive assets.