Hotter-than-expected US CPI initially pushed the US Dollar and US Treasury yields higher, but both moves later faded as markets reassessed the risks of further Federal Reserve tightening. The DXY Index was unable to hold its gains, while implied Fed hike probabilities retraced, suggesting traders were increasingly focused on the potential hit to growth and corporate earnings from additional policy restraint.
Impact Of Political Uncertainty On Markets
Political uncertainty also weighed on US equities and, by extension, the broader Dollar rally. With the midterm elections nearing, market pricing began to question the earlier baseline of Republicans losing the House while retaining the Senate, and prediction markets pointed to a rising risk of a Democratic sweep. That scenario has been associated with concerns around tougher regulatory scrutiny, greater policy gridlock and the durability of elevated equity valuations.
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