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The dollar index rose on Wednesday after US economic data showed inflation increased for August, but did little to change expectations for the path of rate hikes from the Federal Reserve.
The consumer price index increased by 0.6% last month, the largest gain since June 2022, as gasoline prices jumped. The move higher in headline inflation is a head-fake, as it was mostly driven by a 10.5% jump in energy commodity prices. The dollar index, which tracks the currency against a basket of rival currencies, advanced slightly off earlier highs with a gain of 0.11% to 104.70.
The market is pricing in a 97% chance the Fed will keep rates at their current level, up from 92% on Tuesday. Expectations for a 25-basis point hike at the November meeting dipped to 39.4% from 41.1% a day ago. The euro slipped 0.13% to $1.0738 against the greenback ahead of the policy announcement from the European Central Bank (ECB) on Thursday.
A source with direct knowledge of rate setters’ discussions told Reuters on Tuesday that the central bank expects euro zone inflation to remain above 3% next year, supporting the case for a tenth straight interest rate increase this week.
The yen has come under pressure against the dollar as the BOJ remains a dovish outlier among global central banks, especially since the Federal Reserve began its aggressive rate-hike cycle in March 2022.
Traders have been closely watching for any signs of intervention from Japan to shore up the yen since it weakened past the 145 per dollar threshold last month.
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