MUFG Research discusses the USD outlook ahead of the October CPI print, due on Tuesday.

"Market participants and the Fed will be watching closely for evidence of spillover effects from higher energy prices in the latest US inflation data released this week. Recent core CPI readings have surprised to the upside over the last couple of months putting pressure on the Fed to tighten policy.

However, consensus expectations are looking for a softer core CPI print of 0.2%M/M in October. A reading that would help put a dampener on the US dollar’s upward momentum in the near-term," MUFG notes.

"The US dollar appears to be running ahead of short-term yield spreads indicating that a hawkish surprise maybe required to maintain US dollar strength," MUFG adds.

MUFG targets EUR/USD at 1.12 and USD/JPY at 155 by year-end.