Dollar retreats from 18-month high as Fed cools hike bets

The dollar slipped from an 18-month peak on Thursday, October 15. Cautious comments from Federal Reserve officials and a drop in Treasury yields led traders to cut back their bets on an October rate hike, even after a hotter-than-expected inflation report, Reuters Thomson Reuters Corporation ↗ 1.04% reported. The dollar index fell in Asian and European trading. It gave back most of the gains it made on Wednesday, when the inflation data pushed it to its highest level since April 2025, according to Reuters and Trading Economics.reuters.com+2

The euro, tracked as EUR/USD, bounced from an 18-month low and was heading for its biggest daily gain in nearly two months. Sterling, or GBP/USD, recovered from a 13-month low, Reuters reported.finance.yahoo.com

Hot CPI, then a pullback

US consumer prices rose 3.7% in the year to September, up from 3.4% in August and above the 3.6% forecast. Core prices rose 2.6%, against expectations of 2.5%, Investing.com reported. Core CPI rose 0.3% on the month, above the 0.2% economists expected, and markets briefly priced about a 50% chance of a hike at the Fed's October 27–28 meeting, Reuters said.ca.investing.com+1

Those odds then fell. Traders were pricing roughly a 30% chance of an October hike, compared with 20% before the data, according to CME FedWatch ↗ 1.52% figures cited by Investing.com.ca.investing.com

Fed signals patience

Fed Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly both said the central bank could wait for a clearer picture before the October meeting, Reuters reported. Daly said more rate increases might be needed but that there was no urgency to act this month. Bowman, speaking at the IMF-World Bank meetings in Bangkok, saw no urgency for another hike after the Fed's recent increase, which lifted the target range to 3.75%–4.00%, according to The Economic Times.economictimes.indiatimes.com+1

"Markets have sort of taken the view that maybe it was not hot enough to force the Fed's hand for October," said Khoon Goh of ANZ. He added that the meeting falls just days before the midterm elections, Reuters reported.reuters.com

Yields drive the move

Hot inflation revived fears that rates will stay high for longer, as well as concerns about the heavy debt loads of AI companies. That sent investors into the safety of Treasuries, and both 10- and 30-year yields fell to around three-week lows, according to Reuters.rmb.reuters.com

"The dollar has gone down in a hurry … we think the biggest factor has been the decline in 30-year yields," said Rodrigo Catril of National Australia Bank. He said the dollar would likely consolidate while expectations of Fed hikes stay high, Yahoo Finance reported. Sim Moh Siong of OCBC Oversea-Chinese Banking Corporation Limited said the "USD rally lacked punch as the retreat in Treasury yields after an initial jump softened the rates impulse," according to Reuters.finance.yahoo.com+1

Traders are now waiting for Thursday's US producer price and retail sales data. They will also watch Fed Chair Kevin Warsh's remarks in Bangkok on Friday for signs of the central bank's next move, Reuters said.rmb.reuters.com