Annual inflation in the United States, measured by the Consumer Price Index (CPI), climbed to 3% in September from 2.9% in August, according to data released Friday by the US Bureau of Labor Statistics (BLS). The figure came in slightly below the market consensus of 3.1%.
On a monthly basis, headline CPI increased 0.3%, moderating from August’s 0.4% gain. Core CPI, which excludes volatile food and energy components, rose 0.2% month-on-month, also falling short of expectations for a 0.3% increase. On an annual basis, the core CPI stood at 3% in September.
Market reaction
The US Dollar (USD) weakened modestly following the softer-than-expected inflation print. At the time of writing, the US Dollar Index (DXY) was down 0.12% on the day, trading near 98.80.
Market expectations ahead of the release
Before the data was published, markets were expecting a 3.1% year-over-year rise in September CPI—an acceleration from August’s 2.9% increase. Analysts broadly anticipated that the Federal Reserve would proceed with a 25-basis-point rate cut at its meeting next week.
Investors had been closely monitoring the data for clues on how trade tariffs imposed by President Donald Trump’s administration might be filtering through to consumer prices. As such, the CPI release was viewed as a potential catalyst for short-term volatility in the USD, given its implications for the Fed’s rate outlook heading into year-end.
What analysts expected
Economists had projected that headline CPI would increase 0.4% month-over-month, while core inflation would rise 0.3%. Analysts at TD Securities anticipated that the report would highlight a slowdown in services inflation—particularly in housing—offset by firmer goods prices reflecting tariff pass-through effects. “A still firm core should again result in a steady headline CPI at 0.4% m/m as a jump in the energy segment likely also provided a notable boost to September prices,” the analysts noted.
Implications for the Fed and the US Dollar
Ahead of Friday’s release, markets were pricing in a 97% probability of a 25-basis-point cut in the Fed’s policy rate at the upcoming meeting, according to the CME FedWatch Tool. Traders also expected another reduction in December, which would bring the target range from 4.00–4.25% to 3.50–3.75% by year-end.
Given the limited flow of key economic data during the ongoing US government shutdown, the September inflation report was seen as a critical input for the Fed’s decision-making process. While a stronger-than-expected core inflation reading—particularly above 0.5%—could have prompted markets to reassess the likelihood of a December rate cut, today’s subdued data is unlikely to alter expectations for next week’s policy move.
Commerzbank FX Analyst Antje Praefcke commented that the latest inflation figures may offer some insight into the inflationary effects of tariffs, but are unlikely to shift the Fed’s stance:
“Even if the data surprise to the upside, the Fed will likely stick with its plan to ease policy, as most officials view tariff-related price pressures as temporary,” she said. “The dollar has been slightly firmer ahead of the data, but any upside surprise in prices is unlikely to derail expectations for a rate cut next week.”
Technical outlook for the US Dollar Index
Eren Sengezer, European Session Lead Analyst at FXStreet, noted that the short-term technical outlook for the USD Index remains constructive:
“The RSI on the daily chart is moving toward 60, while DXY continues to trade comfortably above the 20-, 50-, and 100-day Simple Moving Averages (SMAs).”
“On the upside, the Fibonacci 23.6% retracement of the January–July downtrend sits near 99.50, which could act as immediate resistance. A close above this level may open the door toward 100.00 and 100.80, the latter aligning with the 200-day SMA,” he added.
“Support is seen at 98.50 (20-day SMA), followed by 98.10–98.00 (50- and 100-day SMAs) and 96.40, marking the previous downtrend’s lower boundary.”
