Dollar Gains Ahead of Crucial US Inflation Data
The US dollar gained strength against most major currencies on Friday ahead of crucial inflation data releases in the United States. The August consumer price inflation data is set to be released at 8:30 am ET, followed by the University of Michigan's preliminary September sentiment reading at 10:00 am ET.
As traders often cut exposure and add short-term protection before major US data prints, the dollar tends to benefit from this risk control behavior. Europe's currencies, however, softened despite the European Central Bank raising interest rates by a quarter of a percentage point.
The Japanese yen stood out as an exception, strengthening ahead of the Bank of Japan's September 17-18 meeting, where officials may signal a shift away from ultra-low rates. This has made USD/JPY particularly volatile, with investors' expectations of US interest rate changes after the CPI data release having a significant impact on the pair.
As the EUR/USD and GBP/USD are also sensitive to changes in expected US interest rates, traders may see significant movements in these pairs if the inflation data pushes investors to rethink the Federal Reserve's next step.