September's US inflation report, released on 14 October, delivered an upward surprise overall, with non-core inflation also beating consensus and raising the probability that the Federal Reserve (Fed) will hike interest rates this month. The US dollar appreciated sharply in the aftermath before retreating somewhat against most of its pairs. The data and their implications for monetary policy also echoed across other markets: gold held near two-month lows above $4,100, while the British pound consolidated around $1.32.

Fuel Drives the Headline Beat

Annual headline inflation in the United States accelerated slightly more than expected to 3.7%, with fuel the main driver. Headline readings capture the full consumer basket, including energy and food, while core measures strip out those volatile components. Average petrol prices rose more than 34% year on year last month, up from around 27% in August, while fuel oil was up nearly 75% annually. The overall annual headline rate remains below May's peak, but the slight surprise to the upside — consensus had been 3.6% — influenced more participants to price in a Fed hike this month.

Employment, by contrast, appears in recent months to be a drag on inflation rather than an exacerbating factor, because recent nonfarm payrolls reports — with the notable exception of August's data — have been at least somewhat negative. This seems to be one factor discouraging more aggressive monetary tightening.

Having been around parity in the immediate aftermath of 14 October's inflation release, probabilities for this month's Fed meeting now skew significantly toward a hold, at around 70%. The Fed is somewhat limited in its options for tackling inflation under current circumstances: a higher funds rate does not clear the Strait of Hormuz to shipping, and the elasticity of demand for fuel is limited. Rate policy operates primarily through demand, so price pressure originating on the supply side responds to it only indirectly.

October's inflation figures, due for release on 11 November, now look even more important, as they may offer clues on whether September was a blip or the start of a new upward inflation trend. If the latter, traders might begin pricing 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 to 14 October's US inflation data, 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, and there has been no sustained change in probabilities for rates next year: according to CME FedWatch, which derives market-implied odds from fed funds futures, the plurality of traders still sees the funds rate peaking at 4.5–4.75% in summer 2027. Oil's pause and then retreat on 14 and 15 October also removed some pressure on gold.

Because gold pays no yield, its price tends to be sensitive to shifts in interest-rate expectations, which is why Fed pricing remains a standing reference point for the metal. 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 the ATR relatively very low, some degree of bounce seems likely over the next few sessions. The area around $4,300, within the value zone between the 50 and 100 simple moving averages (SMAs), could be an initial target, followed by the 200 SMA around $4,450.

Summer's double or triple bottom around $4,000 confirms that area as support, one that probably will not be broken unless expectations for monetary policy shift significantly. Kevin Warsh's comments at the IMF meeting on 16 October are unlikely to have a significant impact on the chart, but they could provide additional 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's hotter US inflation print. However, the lack of significant change in expectations for US rates at the end of the month 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. Relative policy paths are a core driver of currency pairs, so the contrast between a hike-leaning Bank of England and a hold-leaning Fed frames the rate differential behind cable's moves. British monthly GDP for August came in better than the consensus of negative 0.1%, at positive 0.1%, while the IMF recently upgraded its forecast for British growth — 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 appears 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 a bounce is possible, though there may first be consolidation below the 23.6% Fibonacci level.

There are no clear signals from volume, the slow stochastic or the ATR at present, but the 50 SMA is about to death-cross the 200 and 100. The longer-term direction for now seems downward, but a breakout below $1.31 would probably require more surprising data, such as a significantly worse result from the British jobs report on 20 October, lower inflation the following day, or both.

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The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.