Non-core inflation beating the consensus has increased the probability of a hike this month.
14 September’s inflation data from the USA delivered an upward surprise on the whole, increasing the probability of the Federal Reserve (Fed) hiking rates in October. The US dollar appreciated sharply in the aftermath before retreating somewhat in most of its pairs. This article summarises the latest data on inflation and their possible effects on upcoming monetary policy then looks briefly at the charts of XAUUSD and GBPUSD.
Annual headline inflation in the USA accelerated slightly more than expected to 3.7, with fuel being the main driver:
Average prices of petrol rose more than 34% annually last month compared to around 27% in August while fuel oil was up annually by nearly 75%. The overall annual headline rate remains below May’s peak but the slight surprise higher – the consensus had been 3.6% – influenced more participants to price in a hike by the Fed this month.
Overall in the last few months, employment appears to be a drag rather than an exacerbating factor for inflation because recent NFPs with the notable exception of August’s data have been at least somewhat negative. This seems to be one factor discouraging more strident monetary tightening:
Having been around parity in the immediate aftermath of 14 October’s inflation, the probabilities for this month’s meeting of the Fed now skew significantly more to a hold at around 70%. The Fed is somewhat limited in its options to tackle inflation under the current circumstances since obviously a higher funds rate doesn’t clear the Strait of Hormuz to shipping and the elasticity of demand for fuel is limited.
October’s inflation to be released on 11 November now seems to be even more important because it might give clues on whether September was a blip or the start of a new upward trend by inflation. If the latter, traders might start to price in more than two hikes in the first half of 2027. For the moment, though, the base case remains a hold this month and a single hike in December.
Gold holding around two-month lows
After a large initial downward reaction following 14 October’s American inflation, gold recovered to some degree and held above $4,100. The large majority of participants still expects the Fed to hold at the end of the month while there hasn’t been a sustained change in probabilities for rates next year; the plurality of traders according to CME FedWatch still sees the funds rate peaking at 4.5-4.75% in summer 2027. Oil’s pause then retreat on 14 and 15 October also removed some pressure on gold.
The 38.2% weekly Fibonacci retracement around $4,160 remains the primary technical reference. With the price seemingly lacking momentum to push below $4,100 and ATR relatively very low, some degree of bounce seems likely over the next few sessions. Around $4,300 in the value area between the 50 and 100 SMAs could be an initial target followed by the 200 SMA around $4,450.
Summer’s double or triple bottom around $4,000 confirms this area as a support which probably won’t be broken unless expectations for monetary policy shift significantly. Kevin Warsh’s comments at the IMF’s meeting on 16 October are unlikely to have a significant impact on the chart but could provide some more material to analyse as the Fed’s next meeting approaches on 28 October.
Cable consolidates around $1.32
Like many other majors against the dollar, the pound initially retreated strongly after 14 October higher American inflation. However, the lack of significant change in expectations for American rates at the end of the month though contributed to a strong later intraday bounce once the dust settled.
Meanwhile the Bank of England seems almost certain to hike to 4% on 5 November although the number of hikes in the first half of 2027 remains uncertain between two and three. British monthly GDP for August was better than the consensus of negative 0.1% at positive 0.1% while the IMF recently upgraded its forecast for British growth in a boost to the Chancellor as the budget approaches later this month.
14 October’s attempt on the 38.2% weekly Fibonacci retracement around $1.312 seems to have been rejected decisively for now as seen in the very long tail of that candlestick. Taking a reductionist approach, cable is near the lower end of its range since last summer, so it might be possible to see a bounce, but there might be consolidation first below the 23.6% Fibo.
There aren’t any clear signals from volume, the slow stochastic or ATR currently, but the 50 SMA is about to death cross the 200 and 100. The longer term direction for now seems to be downward but a breakout below $1.31 would probably need more surprising data, such as a significantly worse result from the British job report on 20 October, lower inflation the following day or both.
For the latest analysis, ideas for trading and more, follow Michael on X: @MStarkExness.
The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.
