US Dollar Index Rises on Positive Inflation Data

The US Dollar Index experienced a modest increase during Thursday's trading session, driven by the release of US inflation data for September that exceeded market expectations. However, a notable rise in unemployment claims tempered the index's overall performance.

Key Influences on the Dollar Index:

Positive US Inflation Data Bolsters the Index

The Dollar Index received significant support following the release of favorable inflation figures. The annual consumer price index (CPI) inflation for September was recorded at approximately 2.4%, surpassing the market expectation of around 2.3%. In comparison, the previous reading for August was approximately 2.5%.

Additionally, the core inflation rate, which excludes volatile food and energy prices, registered about 3.3% year-on-year at the end of September, exceeding both market forecasts and the previous rate of 3.2%. This data has heightened concerns regarding the challenges of curbing inflation in the US in the near future.

Increasing US Bond Yields Provide Support

The dollar found further backing during Thursday's trading, supported by strong yields on US government bonds across various maturities. The yield on 10-year US bonds rose by approximately 0.74%, settling near 4.098%. Similarly, the yield on 20-year bonds increased by about 0.83%, reaching around 4.447%. Moreover, the yield on 30-year US bonds rose by approximately 1.14%, hitting around 4.387%, which contributed to the dollar's stronger performance.

Surge in Unemployment Claims Raises Concerns

On the downside, the US unemployment claims data negatively impacted the index's performance, raising concerns about potential weaknesses in the labor market. The report from the US Labor Department revealed a significant rise in unemployment claims, exceeding market expectations.

Specifically, unemployment claims surged by 258,000 new applications for the week ending October 4, marking the worst reading since May 2023, and surpassing forecasts that had anticipated an increase of only 230,000 claims. This spike has fueled concerns about vulnerabilities in the labor market, potentially prompting the Federal Reserve to reconsider its interest rate strategy to avert further deterioration in employment conditions.

Reaction of the Dollar Index to Recent Developments

In light of these developments, the US Dollar Index recorded a slight decline of about 0.11%, settling near 102.99 points. Market participants are now looking ahead to the release of Producer Price Index (PPI) data on Friday, which is expected to significantly influence trading activity.

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