Dollar Rises as Hawkish CPI Report Boosts Odds of Interest Rate Hike
The US dollar index (DXY) rose by 0.06% on Friday after a hawkish Consumer Price Index (CPI) report boosted odds of an interest rate hike next week to 88%. The CPI report, which showed a 2.4% year-over-year increase in core inflation, was in line with market expectations but stronger than expected.
The rise in the dollar index was accompanied by a 0.6 basis point increase in the 10-year Treasury note yield, which supported the dollar's interest rate differentials. The stronger-than-expected CPI report initially caused oil prices to decline by 2.4%, but the market eventually caught up with the T-note market.
The University of Michigan's preliminary September consumer sentiment index fell to 47.8, weaker than expected, while October WTI crude oil prices declined by 2.4% on Friday after a strong rally in the previous session.
The yen saw support from the decline in oil prices and expectations of a Bank of Japan (BOJ) rate hike later this month. Markets are pricing in a 96% chance of a +25 bp BOJ rate hike at the September 18 policy meeting, which would support the yen and prevent inflationary pressures.