US CPI inflation softens to 3.2% after rising 3.7% in Sep, dollar weakens

The dollar weakened on Tuesday after data for U.S. consumer prices showed signs that underlying inflation slowed in October, increasing the odds that the Federal Reserve is done hiking interest rates.

U.S. consumer prices were unchanged last month amid lower gasoline prices, the Labor Department's Bureau of Labor Statistics (BLS) said, following a 0.4% rise in September.

In the 12 months through October, the consumer price index (CPI) climbed 3.2% after rising 3.7% in September, BLS said.

"You can say goodbye to the rate hiking era," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Matthew Miskin, co-chief investment strategist at John Hancock Investment Management in Boston, said the Fed will likely be in a holding pattern, with inflation moderating and a weakening labor market.

"Another rate hike from here looks less likely given this softer inflation data," Miskin said.

The dollar index, a measure of the U.S. currency against six peers, was down 0.97% at 104.600810. Among major currencies, the euro rose 1.13% to $1.0818 and the Japanese yen strengthened 0.59% to 150.79 per dollar.

Fed Chair Jerome Powell and other policymakers in recent days have tried to push back against market expectations that the U.S. central bank was done with its aggressive rate-hike cycle.

The yen earlier was under pressure after it briefly jumped against the dollar on Monday - having touched a one-year low - in a move attributed to a flurry of trading in options rather than any intervention from Japanese authorities.

DTCC data from LSEG's Eikon platform shows yen options worth a notional $3.5 billion with strike prices between 151.90 and 152 are due to expire between Wednesday and Friday.

Another $2.2 billion notional worth of options with strikes between 151.90 and 152 will expire between Nov. 20 and the end of the month.

Japanese authorities in September and October last year intervened in the currency market to boost the yen for the first time since 1998.

"Our base case is that we could have intervention if we break the 152 level for dollar/yen," said Yusuke Miyairi, an FX strategist at Nomura.