US Dollar Steadily Strengthens as Investors Await CPI Data
On Thursday (October 23), during the New York session, the dollar continued its rise this week, driven by inflation data expectations and escalating trade tensions, prompting investors to increase their allocation to safe-haven assets. The dollar index fluctuated narrowly above 99 points, peaking at 99.12 during the session, close to the month's high. Market sentiment was cautious and tense, primarily driven by two factors: the upcoming US Consumer Price Index (CPI) and renewed frictions in US-China trade relations.
Analysts point out that this round of dollar strength is not driven by a single economic data point, but rather the result of multiple factors resonating. As the market awaits the inflation data release, investors are inclined to position in dollars in advance to cope with potential policy signal changes.
Weak Yen Boosts Dollar's Rise
The US dollar against the Japanese yen became the main focus of the forex market. Due to changes in Japan's political landscape and policy expectations being revised, the yen weakened again, pushing the USD/JPY to 152.71, just shy of a seven-month high.
Japan’s new Prime Minister Sanae Takaichi is seen as a proponent of fiscal easing, and the market initially expected a new round of stimulus policies. However, as policy details delayed, investor confidence quickly cooled. Tokyo market insiders noted, "The yen's weakness is directly related to unmet Japanese fiscal expectations, benefiting the dollar."
The market generally believes that before the Federal Reserve's rate cut expectations are fully realized, the USD/JPY will remain strong within the 150 to 153 range.
Euro and Pound Under Pressure as UK Data Weakens Rate Cut Bets
Among major currencies, the euro and pound remained weak. The EUR/USD hovered near 1.1610, with the market cautious about the European Central Bank's tightening space. In the UK, the latest inflation data fell short of expectations, putting pressure on the pound. The GBP/USD reported at 1.3350, saw a slight rebound but lacked upward momentum.
Analysts indicated that the drop in UK inflation increases pressure on the central bank to cut rates, with financial markets already factoring in the possibility of a rate cut in the first half of next year. This expectation further supports the dollar's relatively strong position.
Trade Frictions and Sanction Risks Increase Safe-Haven Demand
On a macro level, US Treasury Secretary Scott Beznsky confirmed that Washington is considering new software export restrictions to counter China’s technological competition. This statement rekindled market concerns about trade prospects, boosting risk aversion and benefiting the dollar significantly.
Meanwhile, the latest sanctions imposed by the US on Russian energy giants have heightened geopolitical risks. Investors generally agree that should US-China and US-Russia relations deteriorate further, global capital may continue to flow into dollar assets to hedge against uncertainties.
In the bond market, the 10-year US Treasury yield rose to 3.995%, reflecting market expectations that the Federal Reserve may maintain high rates for longer.
Dollar Index Maintains Strong Structure
From a technical perspective, the dollar index finds support near the 50-day moving average at 98.09, with a short-term upward trend. The key resistance level is near 99.30, and if breached, it may open further upside potential, targeting the 99.80 to the 100 range.
Analytical institutions note that the dollar index successfully transitioned previous resistance into multiple supports, including key points at 98.23 and 98.79. As long as the price stays above 98.50, short-term correction risks are limited.
Inflation Data and FOMC Meeting Become Key Variables
In the next 48 hours, investor attention will focus on the CPI report released on Friday. If the inflation data exceeds expectations, the Federal Reserve may maintain a hawkish stance, allowing the dollar to continue rising; conversely, if price pressures significantly ease, the dollar may experience a short pullback.
Meanwhile, the FOMC meeting scheduled for October 29-30 is seen as the last key policy node of the year. The market expects the Federal Reserve may cut rates once more before the end of the year, but if the labor market data remains robust, the pace of policy shifts may be delayed.
Overall, under the combined influence of inflation expectations, trade tensions, and policy uncertainties, the dollar remains resilient in the short term. Analysts widely believe that until global risk aversion significantly cools, the strong dollar pattern is difficult to shake.
