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Morning Edition · Monday, October 12, 2026Published at 1:11 AM EDT · New York
Dollar holds near its highest level in a year and a half before US inflation data forecast to show a 3.6% annual rise
Wednesday's consumer price report is one of the last major data releases before the Federal Reserve meets on October 28, and higher oil prices have pushed up the forecast for headline inflation.
The dollar index stood at 102.14 on Monday, near the 18-month peak it reached last week, according to Reuters. That peak was 102.54 on October 5, according to market data. India's Economic Times attributed the dollar's strength to caution over the Middle East, where fighting in Saudi Arabia is damaging infrastructure.
The next test is the US consumer price index (CPI), due on October 14. Forecasts call for headline prices to rise 0.6% in September from August, which would lift the annual rate to 3.6% from 3.4%. Core prices, which exclude food and energy, are forecast to rise 0.2%. Most of the gap between those two forecasts comes from energy.
The Fed is debating whether to raise rates in response to a supply shock. Reuters reported that Fed policymakers lean against an October rate increase, and Goldman Sachs moved its forecast for the next increase to December from October. Israeli business daily Globes described trading in Asia as mixed on Monday morning, with oil falling and US stock futures rising, as investors weighed President Trump's energy truce against continued Houthi attacks. Reuters' Morning Bid column questioned whether the truce would hold without both sides committing to it.
From a sound-money view, the Fed's position is difficult. Annual inflation of 3.4% has held above its target since summer, and the oil shock is now reaching the headline figure. A central bank that declines to raise rates leaves real rates low, which supports asset prices. Raising rates would push the dollar up further and tighten financing for every borrower abroad that owes dollars.
Part of a tracked trend
Renewed Fed Tightening Fears Rattle Global Markets
Over the next 3-6 months stronger US data revives expectations of Fed rate hikes, driving a firmer dollar, equity selloffs in export-heavy markets, and pressure on hard assets as the IMF warns of recurring economic shocks.
What this means
A strong dollar raises the cost of dollar debt for emerging-market borrowers and raises local-currency oil bills for countries that import oil. That is why several oil-importing central banks have already turned to interest rate increases. In the near term, the dollar's rise runs counter to the desk's thesis that the dollar's reserve role is eroding. In a crisis, investors still buy dollars. The common reading treats the 0.6% monthly headline figure as an energy effect that will fade. The risk to that view is that oil has stayed above $100 long enough to feed into transport and goods prices. The more likely outcome is that the Fed holds rates on October 28 but keeps a December increase open, and that the dollar stays near its current highs for several weeks. This forecast depends on core inflation staying near 0.2% a month. It would be proven wrong by a core reading of 0.4% or more, which would put an October increase back into market pricing and push the dollar to a new high.
What to watch
- The core figure in Wednesday's report. A strong core number would show that inflation is spreading beyond energy and would push the Fed toward a rate increase.
- Statements from Fed officials after the report. A shift from "watching" to "prepared to act" would show a change in the committee's majority view.
- Currencies of major oil-importing countries, such as the Indian rupee. Further weakness would bring more emergency rate increases outside the United States.
Observations to monitor, not financial advice.
Synthesized from: Economic Times · Investing.com (Reuters Morning Bid) · Globes (Hebrew)
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Comments
1Oct 12, 5:11 AM
A 0.6% monthly headline rise annualizes to about 7.4% while 0.2% core annualizes to about 2.4%, so the October 28 Fed decision turns on whether officials look through the energy component.