Will US Consumer Price Index data reinforce expectations for a December Fed rate hike?

The US Bureau of Labor Statistics (BLS) will publish the October Consumer Price Index (CPI) data on Tuesday, a release that could influence the US Dollar (USD) valuation as investors reassess the Federal Reserve’s (Fed) interest-rate outlook.

The report won’t include 12-month percentage changes for most CPI series in this release, due to missing October 2025 monthly data because of the lack of collection during the government shutdown from October 1, 2025, to November 12, 2025.

“For most CPI series, BLS could not publish October 2025 indexes. As a result, BLS will not publish 12-month percent changes for October 2026 for indexes where October 2025 data are not available,” the BLS noted in a press release.

On a monthly basis, headline CPI is forecast to rise 0.3% following the 0.6% increase recorded in September, while the core CPI is seen increasing 0.2%, compared to 0.3% in the previous month.

Economists at Deutsche Bank see a clear moderation in the upcoming US inflation data. They note that “headline CPI [is] to rise by 0.20% month-on-month, down from 0.65% previously, with core CPI also up 0.20% after 0.33% last time.” Despite the anticipated softer prints, the bank’s team “continue[s] to expect 25bp rate increases at the December and March FOMC meetings, absent a further material tightening in financial conditions.”

How could the US Consumer Price Index report affect EUR/USD?

According to the CME FedWatch Tool, markets currently see about an 80% chance of the Federal Reserve (Fed) raising the policy rate by another 25 basis points (bps) at the last meeting of the year.

Speaking at a news conference after the Fed's decision to leave interest rates unchanged at a range of 3.75%-4.00% in October, Fed Chair Kevin Warsh described labor market conditions as “positive,” and added that the discussion among policymakers is focused mainly on the price stability mandate. The October employment report confirmed a robust labor market, with Nonfarm Payrolls (NFP) rising by 165K and the Unemployment Rate declining to 4.1% despite an uptick in the Labor Force Participation Rate.

In the meantime, crude Oil prices declined sharply last week as markets grew optimistic about a diplomatic resolution to the conflict in the Middle East following the Republicans’ defeat in the midterm elections. Although this recent fall won’t be reflected in October inflation figures, a notable downward surprise in the monthly CPI, with a print of 0.1% or lower, combined with an extended slide in energy prices could cause market participants to refrain from pricing in a rate hike in December. In this scenario, the US Dollar (USD) could come under sudden selling pressure and help EUR/USD gather bullish momentum in the near term.

Conversely, a reading at or above market expectations, coupled with a lack of progress in ceasefire negotiations with Iran, could reinforce an increase in interest rates next month. However, the market positioning suggests that the USD’s upside potential could remain limited in this scenario, paving the way for a short-lasting bearish reaction in EUR/USD.

At the same time, the action in stock markets could further influence the USD’s valuation and impact EUR/USD’s performance. An extended selloff in technology stocks could support the USD and cap EUR/USD gains even if inflation data arrive soft and reinforce a cautious Fed policy-tightening path.

Strategists at ING argue that the recent US Dollar strength is heavily contingent on risk sentiment, noting that “we think the dollar rally requires the risk-off mood to persist this week.” They caution that “Friday’s move looked a bit too stretched relative to short-term market drivers,” leaving “some moderate correction risk” if market nerves ease. Even so, ING believes the broader backdrop remains Dollar-supportive, with the “macro story”

“We expect tomorrow’s October US CPI to come in at 0.3% month-on-month for both headline (consensus 0.3%) and core (0.3%),” they add and note that such an outcome “should help cement expectations for a December Fed hike (19bp priced in), making the swap curve more protected from other equity market shocks.”

Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for EUR/USD:

“The EUR/USD pair has been moving in a relatively narrow channel since the beginning of October. During last week’s post-midterm elections rally, the Relative Strength Index (RSI) indicator on the daily chart recovered toward 50 but failed to clear this level, highlighting buyers’ hesitancy.”

“On the upside, 1.1260 (upper arm of the Bollinger Bands, static level) aligns as the first resistance level ahead of 1.1335 (50-day Simple Moving Average (SMA), static level) and 1.1410 (100-day SMA). Looking south, the first support level could be spotted at 1.1130 (lower arm of the Bollinger Bands, static level). If this support fails and gets confirmed as resistance, technical sellers could take action and open the door for an extended drop toward 1.1000 (static level, round level).”