TLDR
U.S. consumer prices rose 3.4% year-on-year in August, matching July and meeting expectations
The Dollar Index held near 99.04 after muted reaction to the CPI report
Markets price in a 68% chance of a Fed rate hike at the Sept. 15-16 meeting
The Japanese yen gained 1.2% for the week, its second straight weekly advance
The ECB raised its deposit rate 25 basis points to 2.50%, influenced by oil prices surpassing $100
The U.S. dollar held largely steady on Friday after August inflation data came in close to expectations. Consumer prices rose 3.4% year-on-year, unchanged from July. On a monthly basis, prices increased just 0.1%.
Core CPI, which strips out food and energy, rose 2.5% from a year ago and 0.2% month-on-month. The reading matched what analysts had forecast, which limited the dollar’s immediate move.
The Dollar Index traded near 99.04 on Friday, little changed after the data. It had risen 0.26% the day before following a stronger-than-expected producer price report.
Thursday’s producer price data showed final-demand prices up 5.4% year-on-year. That raised concerns that rising energy costs could keep inflation elevated heading into the Federal Reserve’s next meeting.
Fed Rate Hike Odds Stay High
Markets are currently pricing in a 68% probability of a 25-basis-point rate hike at the Fed’s Sept. 15-16 meeting, according to LSEG data. The combination of elevated producer and consumer inflation keeps pressure on policymakers.
“Rising energy costs amid ongoing tensions in the Middle East continue to fuel inflation concerns,” said BankPro CEO Paolo Broccardo. Ten-year Treasury yields dipped 0.6 basis points to 4.938% but remained near multi-year highs.
AJ Bell’s investment director Russ Mould noted that stabilizing oil prices and bond yields allowed for a calmer market open on Friday after a more volatile Thursday session.
The euro barely moved, trading near $1.1609. Investors were still absorbing the European Central Bank’s decision on Thursday to raise its benchmark deposit rate by 25 basis points to 2.50%.
Yen Extends Winning Streak on BOJ Hike Bets
The Japanese yen outperformed other major currencies, gaining 0.14% on the day to reach 154.18 per dollar. The yen is up 1.2% for the week, marking its second straight weekly gain and its longest winning streak since May.
The move reflects growing market conviction that the Bank of Japan will raise rates at its Sept. 17-18 meeting. Japan’s Corporate Goods Price Index jumped 7.6% year-on-year in August, beating forecasts of 7.4%.
That data suggests rising import costs are passing through into domestic inflation. Markets are pricing in a 25-basis-point hike to bring the BOJ’s benchmark rate to 1.25%.
DBS analysts said that while the hike is widely expected, investors will watch closely for any signals on the pace of future increases. The BOJ is not expected to commit to rapid successive rate rises.
The Australian dollar edged up 0.29% against the greenback. Currency markets broadly remained in a wait-and-see mode ahead of the Fed’s upcoming decision.
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