Copper prices have edged lower, with futures on the London Metal Exchange falling by as much as 0.6%, after hotter-than-expected US inflation data led traders to increase their bets on the Federal Reserve hiking interest rates. This marks copper's first weekly decline since June, with most other major metal contracts also trading lower due to a strengthening dollar and broader pressure on risk assets. The US consumer price index (CPI) rose 0.4% month-over-month and 3.4% year-over-year as of September 11, while core CPI climbed 0.3% on the month, exceeding Wall Street's expectations.
Following the inflation report, the probability of a Federal Reserve rate hike at the September 15-16 FOMC meeting has surged to approximately 85-88%, according to market-implied pricing. Higher interest rates typically strengthen the dollar, making dollar-denominated commodities like copper more expensive for international buyers. Additionally, increased borrowing costs can negatively impact the construction and manufacturing sectors, which are major consumers of copper.
This pullback is particularly notable given that copper had recently reached record highs, with prices on the LME surpassing $14,500 per metric ton and COMEX copper nearing $6.8 per pound earlier in September. These record levels were driven by tight global supply and concerns about potential tariffs. However, the Federal Reserve, under Chair Kevin Warsh, has maintained a hawkish stance throughout 2026 due to persistent inflation, particularly energy-related inflation, leading to multiple rate hikes.
Traders are now closely watching the outcome of the September 15-16 FOMC meeting to understand the Fed's future policy direction. While a 25-basis-point hike is largely priced in, any guidance suggesting additional hikes would create further headwinds for copper. The continued strengthening of the dollar, driven by rate hikes, could also soften import demand from China, the world's largest copper consumer, adding more downward pressure on prices.
Despite recent declines, copper did stabilize ahead of the Fed's decision and shrugged off hawkish rate signals afterward. Futures rose slightly on the LME as traders observed rising inventories. Later, copper held its gains, with benchmark futures rising as much as 0.5% on a Monday morning, as traders weighed signs of near-term supply tightness and increasing buying interest from China. Planned maintenance periods at multiple copper refineries in China between October and November are expected to limit metal availability, contributing to these supply concerns.
