Inflation data in the USA, which is the focus of the markets, is expected to have an impact on the predictions regarding the monetary policies of the US Federal Reserve (Fed). It is considered that the signals that the data will give regarding price increases in the country may be decisive on the dollar index.
Annual inflation in the USA is expected to increase from 3.4 percent to 3.6-3.7 percent, while core inflation is expected to be 2.5 percent.
According to the pricing in the money markets, it is expected that the Fed will not change the policy rate at its meeting this month with an 80 percent probability, while a possible interest rate increase in December is priced at 92 percent. It is estimated that if the data in question is above expectations, hawkish predictions about the Fed may gain strength and this situation may support the dollar.
The dollar index rose to 102.6 yesterday, reaching its highest level since April 2025, due to ongoing geopolitical risks in the Middle East, predictions that the US Federal Reserve (Fed) may increase interest rates and the weakening of the euro.
On the other hand, the index, which completed the day at 102.2 with a decrease of 0.4 percent yesterday, remains horizontal on the new trading day as investors take a cautious stance before the inflation data to be announced in the USA. The index is at 102.1 as of 11.45.
Among the reasons why the dollar index paused its rise are the statements of New York Fed President John Williams.
New York Fed President John Williams said he has not changed his view that the Fed may need to raise interest rates once again this year, but he does not believe more should be done afterward.
Stating that it remains to be seen what will happen next year, Williams explained that many different factors affect the economy, so they will continue to monitor the data. Williams said, "I still believe that disinflationary factors are at play. My inflation forecast for next year is for inflation to decline significantly." he said.
"We expect the dollar index to maintain its strong course in the coming months."
In her assessment to AA correspondent, Rabobank Senior FX Strategist Jane Foley stated that the strong performance of the US economy and the hawkish attitude of the Fed were among the main factors that enabled the dollar to strengthen in recent months.
Stating that the weakening of confidence in the euro is effective in the recent strong course of the dollar against other currencies, Foley said, "The strong growth in the US economy allows the markets to ignore the country's financial problems for now. However, the same is not true for France. The difficult budget negotiations in France in both late 2024 and 2025 led to government instability and the underperformance of French government bonds." he said.
Foley stated that although France's financial problems have triggered the recent pressure on the euro, there are other factors that weaken the currency and made the following evaluations:
"Although the Eurozone economy has demonstrated resistance above expectations, the region's position as an energy importer, concerns about Russia's hybrid warfare activities, and political concerns about the increase in support for the far right in Germany and France put pressure on the euro. These concerns benefit the dollar thanks to its safe haven nature. We expect the dollar index to maintain its strong course in the coming months."
"US inflation is important in the course of the dollar"
Societe Generale FX Strategy Head Kit Juckes drew attention to the four main factors that ensured the strengthening of the dollar throughout the year and said that the inflation data to be announced in the USA is of critical importance for the course of the dollar.
Stating that the conflicts that started in the Middle East in February contributed to the dollar index rising from its lowest levels since 2022, Juckes said, "The fact that the USA is an important energy producer today ensures that the rise in oil prices and the increase in global uncertainty supports the dollar." he said.
On the other hand, Juckes said that it is understood that developments in the field of artificial intelligence support the economic growth of the USA more than other countries, and stated that this effect first emerged when the expectations for the growth of the USA were revised upward in the first quarter of this year.
Juckes stated that another factor supporting the dollar is the reshaping of expectations regarding the Fed's monetary policy following the Jackson Hole symposium held in August.
Stating that it became clear that Fed President Kevin Warsh did not hesitate to increase interest rates during this period, Juckes said, "The change in market pricing regarding the federal fund interest rate since then has been effective in the rise of the dollar to its current levels. The fourth element was the rise in global bond yields. While this increased concerns about the European bond market, it also supported the dollar." made his assessment.
Juckes stated that at this point, expectations about the peak level of interest rates and the US inflation data to be announced today will be important for the course of the dollar, and said, "The market expects core consumer inflation to rise from 2.4 percent and headline inflation to rise from 3.4 percent to 3.6 percent. The dollar's continuation of its rise in the short term may depend on inflation being above expectations or further increasing the pressure on global bond markets." he said.
