US Dollar: CPI to test hawkish conviction – DBS

DBS Group Research economist Philip Wee highlights how upcoming US CPI data will challenge the US Dollar’s hawkish narrative. He notes New York Fed President John Williams supports another rate hike before end-2026 but questions further tightening in 2027. Wee stresses that Core CPI and the broader disinflation trend, rather than headline CPI, will be more important for USD performance.

Core CPI seen driving USD reaction

"New York Fed President John Williams backed another interest rate hike before end-2026 but was reluctant to endorse the market’s pricing for further tightening in 2027."

"Ahead of today’s US CPI release, Williams reminded markets that the Fed remains “data dependent” and not “data-point dependent”. Monetary policy will be guided by the underlying inflation trajectory over the next 1-2 years, rather than individual data releases."

"Against this backdrop, today’s US CPI report should be judged less by the expected acceleration in headline inflation to 0.6% MoM in September from 0.4% in August, but more by the anticipated moderation in core inflation to 0.2% from 0.3%."

"This distinction matters for the USD, whose rally since the September 16 Fed hike has relied heavily on expectations of further tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)