Dollar recedes from 18-month high as bond rally tempers impact of hot inflation data

On October 15, the US dollar slipped from an 18-month high as bond markets rallied and attention shifted to the potential impact of strong inflation data. Producer prices in the US surged to the highest level in 4½ years in September, indicating that inflation concerns are spreading beyond energy costs. Retail sales surprised on the upside, driven by higher gasoline prices, while weekly jobless claims showed only a slight increase, suggesting robust consumer demand and a stable labor market.

These positive economic indicators, however, did not prevent the dollar from weakening as government bonds surged and Federal Reserve officials' cautious comments contributed to the currency's decline. Analysts noted that traders are increasingly wary of the US dollar, especially after a strong performance over the past four weeks.

The dollar index fell 0.45% to 101.99, marking a retreat from its 18-month peak reached on Wednesday. Economists and strategists believe that the Federal Reserve might hold off on raising interest rates at its upcoming meeting on October 27-28, with a 73% probability of maintaining current rates, compared to 53% a month earlier.