The US Dollar Index (DXY) finished at 98.938, up 0.02% on the day, reversing early-session losses of 0.2%. Traders responded to the inflation data with renewed conviction that the Fed will move ahead with a 25 basis point cut next week.
Technically, the index is in an uptrend. The trend indicator is the 50-day moving average at 98.114.
Core CPI, excluding food and energy, increased just 0.2% on the month and 3.0% year-on-year, missing the expected 0.3% and 3.1%, respectively. The data, released despite the ongoing federal government shutdown, reinforced bets on a dovish shift by the Federal Reserve.
Fed funds futures are now pricing in a near-100% chance of a rate cut at the October meeting, with expectations for a follow-up cut in December climbing to 98.5%. Treasury yields reacted mildly. The 10-year yield ended at 4.003%, while the 2-year held at 3.484%, reflecting a market already positioned for easing.
The Japanese yen weakened to a two-week low, last trading at 152.882 per dollar. The decline followed higher oil prices and rising expectations that incoming Japanese Prime Minister Sanae Takaichi will announce a sizable fiscal stimulus package to counter rising living costs.
The euro edged up 0.06% to $1.16009 after data showed stronger-than-expected business activity in the euro zone, led by the services sector. Sterling dipped 0.11% to $1.33108, pulling back despite a retail sales beat driven by increased online gold purchases.
US-Canada trade tensions flared after President Trump terminated discussions in response to a provincial ad in Ontario. However, market reaction was limited, with investor focus shifting to next week's meeting between Trump and Chinese President Xi Jinping, raising hopes for a breakthrough on tariffs.