Dollar retreats from 18-month high as Fed officials temper rate-hike bets

The US dollar retreated from an 18-month high on Thursday as Federal Reserve officials tempered expectations of an October rate hike. Despite stronger-than-expected inflation data, cautious remarks from key Fed officials and a decline in Treasury yields prompted traders to scale back their bullish outlook. The euro gained 0.3% against the dollar, trading at US$1.1187, while the British pound strengthened 0.2% to US$1.3224.

The dollar index, which tracks the greenback against a basket of currencies, dropped 0.1% to 102.06, having relinquished most of its gains after the inflation data, which initially pushed it to an 18-month high. Core consumer price index rose 0.3% in September, exceeding expectations for a 0.2% increase, while the annualized inflation rate climbed 2.6%, surpassing forecasts for a 2.5% hike.

Despite the stronger CPI number, market expectations for an October Fed rate hike rose to 50%, but Fed officials' comments and a pullback in Treasury yields led to a reduction in those expectations. The yield on the US 10-year Treasury bond fell to a three-week low of 5.1267%, and the 30-year bond yield decreased to 5.4795%. A rally in US Treasuries, driving down yields, also contributed to the dollar's decline. Market attention now shifts to upcoming US producer price and retail sales data.