US Dollar Forecast: Strengthens on CPI Expectations and Renewed China Trade Risks

Dollar Firms as Traders Brace for CPI and Renewed Trade Tensions

The US dollar edged higher on Thursday as traders positioned ahead of Friday’s delayed Consumer Price Index (CPI) report and renewed geopolitical risk from escalating US-China trade tensions. Gains were most notable against the Japanese yen, which extended recent losses on domestic political developments and fading policy optimism.

The dollar advanced 0.49% to 152.718 yen, nearing last week’s seven-month high of 153.274. Market sentiment toward the yen weakened after Prime Minister Takaichi—widely seen as favoring accommodative policy—secured leadership of Japan’s ruling party. With anticipation around potential stimulus now priced in, attention has shifted to the feasibility of actual measures.

Meanwhile, the euro remained subdued at $1.1609, while sterling stabilized at $1.335 after recovering from losses on softer UK inflation data that increased expectations for a Bank of England rate cut.

At 15:30 GMT, DXY is trading 99.008, up 0.127 or +0.13%.

CPI Report in Focus as Fed Eyes Labor Market Over Inflation

Markets are looking to Friday’s rescheduled CPI data for clues on US economic momentum. The report—delayed due to the government shutdown—will inform Social Security cost-of-living adjustments and could influence short-term sentiment even though the Federal Reserve has shifted its focus toward labor market health.

Economists expect headline CPI to rise 0.4% month over month in September, with core CPI projected at 0.3%. Year-over-year, both metrics are forecast at 3.1%. Analysts attribute ongoing inflationary pressure to tariff-driven goods pricing, particularly in apparel and furnishings. However, falling mortgage rates are seen as a moderating force, likely easing shelter costs and dampening overall inflation.

Trade Frictions Reignite, Treasury Yields Tick Higher

US Treasury yields rose modestly as the market digested comments from Treasury Secretary Scott Bessent, who confirmed potential export restrictions on US software to China. The 10-year yield climbed to 3.995%, while the 2-year and 30-year yields also posted gains.

President Trump announced a scheduled meeting with Chinese President Xi Jinping, fueling speculation around possible retaliatory measures after Beijing’s rare-earth restrictions. Any escalation could weigh on risk appetite and reinforce safe haven demand for the dollar.

Technical Outlook: DXY Holds Support, Eyes October Highs

The US Dollar Index (DXY) is building on a successful test of the 50-day moving average, currently at 98.094 as of October 23. This level was defended last Friday, with price action confirming it as short-term support. Following a break above former resistance levels at 98.238, 98.714, and 98.797, those thresholds now serve as layered support.

The path higher opens the potential for a test of the October 9 swing high at 99.563. Traders are awaiting a catalyst—potentially Friday’s CPI print—to validate bullish continuation. A print in line or above forecasts could trigger fresh upside toward this technical target.

Market Forecast: Bullish Dollar Bias Into CPI

With CPI expected to show inflation remains above the Fed’s 2% target and trade tensions resurfacing, the near-term bias favors further dollar strength. The yen remains vulnerable, and renewed inflation concerns could reinforce rate cut expectations without undermining dollar demand. A CPI print in line with forecasts may be sufficient to extend recent DXY gains.

More Information in our Economic Calendar.