Dollar fluctuates after CPI Inflation and Jobless Claims came in stronger

This month’s main CPI inflation report is out this morning, with results a bit warmer than analysts were expecting. This has helped pre-market futures sink a little deeper into the red after a relatively strong session yesterday. The Dow is -76 points at this hour and the S&P 500 -14 — both of which closed at new all-time highs Wednesday — while the Nasdaq is down -73 points currently.

CPI for September: Broadly Higher Than Expected

September's Consumer Price Index (CPI) results have exceeded consensus estimates across the board. The headline month-over-month CPI increased by +0.2%, matching last month’s figure and surpassing expectations by 10 basis points (bps). Core CPI for the month also rose +0.3%, consistent with August, which is an uptick from the +0.1% in June and +0.2% in July, indicating a slight upward trend.

Year-over-year, the headline CPI, or Inflation Rate, stands at +2.4%, slightly above the anticipated +2.3% but down from +2.5% the previous month. For context, we are at multi-year lows, comparable to levels last seen in February 2021 during the early Covid vaccination rollout.

Core CPI year-over-year has increased to +3.3%, again 10 bps above expectations, reflecting a return to June’s levels. This persistent metric highlights inflation's stickiness, yet it’s noteworthy that we're now at half the +6.6% rate from two years ago. Such long-term trends help clarify the Fed's current interest rate cuts.

Jobless Claims on the Rise: 248K Initial Claims, 1.86 Million Continuing Claims

For several weeks—if not months—we’ve seen Weekly Jobless Claims consistently meeting or falling below expectations for both new and longer-term claims. While these numbers haven’t aligned perfectly with monthly employment reports, we previously attributed this to an accelerated rate of retirement in the workforce.

However, today’s data presents a different picture: Initial Jobless Claims have surged to a new 52-week high of 258K, marking only the second time this year that we've crossed the 250K threshold. This represents a significant increase from last week’s unrevised figure of 225K, pushing the four-week moving average for new claims up to 231K.

Continuing Claims, reported a week later, also exceeded expectations, rising to 1.861 million—up from the downwardly revised 1.819 million of the previous week. This is the highest level since mid-August, though it still doesn’t raise alarm bells.

US dollar pops then drops after higher jobless claims and hotter CPI

The market reaction to the hotter US CPI report is tough to square. The dollar initially jumped to the best levels of the day but quickly turned lower.

Core and headline CPI was both 0.1 pp higher than expected on a m/m basis and there were no obvious special factors driving the move.

The US Dollar Index (DXY) continues its upward momentum, surging higher on Thursday ahead of the upcoming US CPI report. With US interest rates climbing, it's becoming evident that markets are losing confidence in the Federal Reserve entering a rate-cutting cycle. The current elevated rate environment and the likelihood of no significant rate cuts this year suggest a strengthening Dollar as the US elections approach.

On the upside, the key psychological barrier is the 103.00 level. Beyond that, 103.18 is identified as the final resistance for the week. A breakout above this could lead to volatile trading, with further resistance levels coming into play: the 100-day Simple Moving Average (SMA) at 103.28, the 200-day SMA at 103.77, and the critical 103.99-104.00 zone.