The US Dollar is staying steady near this week’s highs as we get ready for the key Consumer Price Index (CPI) data for September. Analysts expect the CPI to inch up to 3.0% year-on-year, slightly up from 2.9% in August. Market sentiment indicates that the dollar will remain stable before the CPI report comes out.

Market Sentiment and Forecast

There are expectations that the Federal Reserve might adopt a more cautious approach by the end of the year, which could weaken the US Dollar. The current CPI inflation does not yet include the recent increases in the ISM prices paid indexes. Wage growth is in line with the Federal Reserve’s 2% inflation target, supported by an annual non-farm productivity growth rate of roughly 2%. These factors could help boost equity markets as the dollar starts to ease. This content reflects the insights from market experts at the FXStreet Insights Team. Any opinions expressed in this article are not endorsements by FXStreet, and no recommendations are made. The publisher is not responsible for any errors or omissions in the information provided or its use. The US Dollar is trading in a narrow range as we await tomorrow’s important September CPI report. The market is on hold because this inflation data will greatly impact the Federal Reserve’s next decisions. With the Fed keeping its key interest rate between 5.25% and 5.50% for over a year, traders are eager for clues on when rate cuts might happen. We believe the Fed is ready to shift to a more cautious policy by the end of the year, which could put pressure on the dollar. The forecast for headline CPI stands at around 3.0%, part of a gradual decline from the 3.4% rate seen in September 2024. This slowing progress, along with consistent wage growth, gives officials reason to consider easing policy without fearing a new surge in inflation.

Strategy and Positioning

This uncertainty suggests that traders should think about buying volatility through options. Implied volatility on major currency pairs has been increasing, meaning straddles or strangles could benefit from larger-than-expected market movements after the CPI release. The VIX, which measures stock market volatility, has climbed above 17 this month, indicating rising anticipation of a significant event. For those who share our view of an incoming Fed pivot, the strategy should be to prepare for a weaker dollar. We are noticing a significant rise in demand for put options on the US Dollar Index (DXY), set to expire in December 2025 and January 2026. Interest rate futures are already pricing in more than a 70% chance of a rate cut by the second quarter of 2026, and a soft CPI reading would confirm those expectations. A dovish shift from the Fed is likely to fuel the ongoing rally in equity markets. The S&P 500 has risen nearly 8% since July, but it needs confirmation that the high-rate environment is truly over. Buying call options on stock indices like the S&P 500 and Nasdaq 100 is a straightforward way to position for this outcome. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now