Dollar slips from 18-month peak as Fed officials temper rate-hike expectations

Against a backdrop of mixed currency moves, the euro climbed 0.3% to US$1.1187 and the British pound rose 0.2% to US$1.3224, while the dollar index slipped to 102.06, erasing most of the gains from the previous day's inflation surprise. September core CPI increased 0.3% month-over-month and 2.6% annually, edging above expectations, which initially boosted expectations for an October rate hike to about 50%. Fed officials, including vice-chair Michelle Bowman and San Francisco Fed president Mary Daly, cautioned that the data might not be hot enough to force action before the Oct. 27-28 meeting, prompting traders to scale back rate-hike bets.

The retreat was reinforced by a rally in U.S. Treasuries, with the 10-year yield falling to a three-week low of 5.1267% and the 30-year to 5.4795%, dampening the dollar's momentum. Analysts noted that the traditional negative correlation between stocks and bonds helped contain the greenback rally. Market focus now shifts to upcoming producer-price and retail-sales releases, which are expected to show further cost pressures.