The US dollar edged lower on Tuesday as Treasury yields declined ahead of the US inflation report.
Signs that tensions with Iran could ease as diplomatic efforts continue have reduced safe-haven demand and pushed oil prices close to a three-month low.
Lower energy prices may temper inflation expectations, weighing on yields and removing some support for the greenback.
However, no agreement has been signed and sentiment could still shift as the event unfolds.
Markets still price a 25-basis-point Federal Reserve hike in December at around 85%, but traders have trimmed the amount of tightening expected through mid-2027. Today’s inflation data will influence monetary policy expectations. Monthly core and headline inflation are both expected to slow in October. A softer reading could erode tightening bets and weigh on yields and the dollar. A hotter print could still revive expectations of rate hikes beyond December and support both yields and the currency.
Abroad, markets are pricing in a December hike by the European Central Bank. At the same time, minutes from the Bank of Japan’s September meeting strengthened expectations of a December hike, creating a challenging backdrop for the dollar against the yen.
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