The dollar climbed Wednesday after fresh US data, including a warmer-than-expected inflation reading, nudged up bets on a Federal Reserve rate hike ahead of this week's Jackson Hole symposium. The dollar index rose 0.21% to 99.12, on pace for its biggest daily gain since August 6, while the euro slipped against the greenback.
Inflation data firms rate-hike bets
The Commerce Department said the Personal Consumption Expenditures Price Index rose 3.7% in the 12 months through July, unchanged from June and slightly above the 3.6% estimate from economists polled by Reuters. On a monthly basis, PCE rose 0.2%, above the 0.1% estimate, after falling 0.1% in June.
According to Reuters: "I wouldn't chase the rally at all," said George Vessey, lead FX and macro strategist at Convera in London, adding that he would not fade the move aggressively either given competing narratives driving the dollar right now.
Markets are now pricing in a 40.1% chance of at least a 25-basis-point Fed rate hike at the September meeting, according to CME FedWatch, up from about 36% before the data. Fed Chairman Kevin Warsh makes his debut speech at Jackson Hole on Friday, though few expect a clear policy signal. Boston Fed President Susan Collins said Tuesday the Fed will need to raise rates soon unless data show inflation, which remains a pervasive concern for businesses and households, continuing to decline.
Separately, the second-quarter GDP growth estimate held at 1.5%, unchanged from the initial reading, while personal income rose 0.4% in July, above the 0.2% estimate.
ECB signals more tightening
European Central Bank board member Isabel Schnabel said interest rates must rise further as the Middle East conflict drags on and the strong euro zone economy poses upside risks to inflation, Bloomberg News reported Wednesday. That followed a Reuters report that ECB policymakers are ready to raise rates at their September meeting to contain the fallout from the Iran war, though they have little appetite to signal further tightening after that. The euro fell 0.16% to $1.1655 against the dollar.
Other majors move against the greenback
The yen weakened 0.11% to 159.34 per dollar. Sterling dropped 0.35% to $1.3601, on track for its biggest daily drop since August 3. The Canadian dollar weakened 0.24% to C$1.387 per dollar after Ottawa placed retaliatory tariffs on about $20 billion of US annual imports following the collapse of trade talks over the weekend.
The greenback had stumbled late last week after Treasury Secretary Scott Bessent said the Treasury would double the size of quarterly repurchases of longer-dated bonds, a shift some feared could point toward debasement of the dollar.
Source: Investing.com
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