NEW YORK / RankWire.AI / – The US dollar experienced a pullback from an 18-month peak on Tuesday, October 13, influenced by declining oil prices and a reassessment of the rally driven by artificial intelligence optimism. The U.S. Dollar Index, which tracks the greenback against a basket of six leading currencies, decreased by 0.25% to 102.27. Earlier in the week, the index had reached 102.61 on Monday, its highest since April 2025. Market participants were also eagerly awaiting new guidance from the Federal Reserve regarding US interest rate policies.
Oil prices declined by 0.86%, settling at $105.75 per barrel on Tuesday, amid traders weighing the potential for Russia to increase diesel exports beyond levels previously outlined by US President Donald Trump in a deal with Moscow. Russia indicated it might resume diesel shipments at higher levels. Additionally, markets are factoring in the possibility that Trump will avoid escalation in the Middle East ahead of the upcoming midterm elections next month. Last week, Trump stated that the US would not attack Iran before the elections, and on Sunday, he mentioned an energy ceasefire between Russia and Ukraine.
John Velis, macro strategist for the Americas at BNY, commented that the dollar was slightly weaker due to marginally lower oil prices. He pointed out that earnings reports from major banks showed mixed results, and bond yields had eased from recent peaks. Some analysts believe that growing skepticism about the artificial intelligence investment story is also exerting pressure on the dollar rally. Karl Schamotta, chief market strategist at Corpay in Toronto, noted that the US exceptionalism trade had become overly stretched. The dollar had already surged to a 17-month high against major currencies earlier in October.
Euro and yen rebound against the US dollar
On Tuesday, the euro appreciated by 0.3% to $1.1189, bouncing back from a low not seen since May 2025. It had dipped to $1.11525 earlier in the week, the weakest level in nearly 17 months. The rebound occurred despite a further rise in gas prices, which remain a significant factor fueling inflation within the eurozone. Ongoing concerns about France’s fiscal health also persisted. Recently, rising oil prices have supported the US dollar against both the euro and the yen, as these economies rely far more heavily on imported oil compared to the US.
Meanwhile, the Japanese yen strengthened by 0.15%, reaching 158.38 per dollar. The euro also gained 0.21% against the yen, trading at 177.32 yen. The Australian dollar stood at $0.6979 following the release of the minutes from the Reserve Bank of Australia’s latest policy meeting. These minutes indicated that the board unanimously agreed to raise interest rates for the fourth time this year, with the September decision increasing the official cash rate by 25 basis points to 4.60%. The minutes also suggested that further hikes remain a possibility.
Focus on inflation data and Federal Reserve outlook
Market participants are awaiting the release of the US Consumer Price Index for September, scheduled for Wednesday, which could offer more insight into potential Federal Reserve policy tightening. According to CME Group’s FedWatch Tool, traders are now assigning roughly an 80% probability that the Fed will hold interest rates steady at its October 27-28 meeting, up from 51% a month earlier. The market continues to price in about 75 basis points of tightening by late 2027. The Fed implemented a quarter-point rate increase in September. Fed Governor Christopher Waller stated that inflation expectations remain firmly anchored.
The September inflation report, released Wednesday, showed stronger-than-expected figures, pushing the dollar index to an 18-month high. However, the dollar retreated again on Thursday, October 15, with the index falling 0.44% to 102.00 and the euro rising to $1.1210. Officials including Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly indicated that the central bank might choose to wait for additional clarity before acting further. Investors are also monitoring remarks from Fed Chair Kevin Warsh at the IMF-World Bank annual meetings in Bangkok scheduled for Friday.