Forex Today: US Inflation Overshoots Expectations at 3.8%

US CPI (inflation) data released yesterday showed that inflation increased by a little more than expected.

1. Yesterday's big event in the market was the release of US inflation data, which increased from 3.3% to 2.8%. An increase to 3.7% was widely expected, so we have a slight overshoot which produces a small hawkish tilt. This was enough to send the US Dollar a bit higher, with markets already expecting no rate changes by the Fed before 2028 (according to the CME FedWatch tool), and to knock the US stock market a little. However, US stocks have already bounced back, recovering almost all the decline, so it seems like a transitory event. I am very happy to be long of the US S&P 500 Index and the NASDAQ 100 Index. Another major equity Index very close to a bullish breakout to a new record high is the Japanese Nikkei 225.
2. There are reports of a decline in the flow of Iranian crude oil exports passing through Kharg Island, which suggests that the US blockade of Iranian ports may be having an effect at damaging the country's oil production and export. The news has not made much of an effect on the price of crude oil. Trump's harsher rhetoric about how the continued refusal by Iran to deal seriously with US proposals will lead to a renewal of US military strikes on Iran. As President Trump likes to strike on weekends while markets are closed, and as he returns from a meeting with Chinese President Xi just as next weekend starts, we might see action this weekend. However, Trump has also stated he is in "no hurry", although he clearly would benefit from getting the Iran issue all wrapped up ASAP. WTI is currently trading above $100, but with consolidative, maybe slightly bullish price action.
3. Wheat futures rose strongly yesterday to reach a near 2-year high price. If Wheat futures are too big for you to trade, you might be interested in the US ETF WEAT which provides exposure to the price of Wheat. Trend traders will want to get long here.
4. President Trump will shortly arrive in China for a 2/3-day summit with President Xi, accompanied by American business leaders. Trump says his focus will be asking Xi to "open up" China to American exports. With China a major customer of Iranian crude oil, Iran will doubtless also be on the agenda.
5. In the Forex market, the strongest major currency since the Tokyo open was the Japanese Yen, while the Australian Dollar has been the weakest. The US Dollar has firmed slightly.
6. The Indian Rupee is getting a lot of market focus, even though it is an exotic currency, as it trades very near to its all-time low against the US Dollar. The USD/INR currency pair is close enough to a bullish breakout which could happen at any time. The weakness is caused by the recent crude oil price shock and India's huge structural demand for US Dollar. However, the Reserve Bank of India and the Indian government are working hard to try to prevent further, technically significant depreciation by taking the following measures (among others) outlined below. It is hard for a central bank to prop up their currency, so you might want to trade either with or against them depending upon your view.
   1. Selling large amounts of dollars from FX reserves in spot, forwards and NDF markets to slow the rupee’s decline.
   2. Using state‑run banks to sell dollars around key levels (e.g., near 94–95) to cap intraday spikes in USD/INR.
   3. Capping banks’ open FX positions (around 100m USD) and tightening rules on rupee derivatives and NDFs to curb speculative attacks.
   4. Considering or preparing government steps to restrict “non‑essential” imports (especially gold and some consumer goods) and encourage exports to reduce FX outflows.
7. There will be a release of US PPI data - purchasing power index, an inflation-related metric - and also the Fed will be voting on the nomination of Kevin Warsh as Chair.
8. The prediction site Polymarket now sees a peace deal between the USA and Iran unlikely to happen until the final quarter of 2026.
9. The Forex market has been very quiet over today's Asian session. The US Dollar has firmed slightly on the higher US inflation data.
10. As well as the US CPI (inflation) data which will be released today, the nomination vote for Kevin Warsh as the new Fed Chair will also be held in the US Senate.