Dollar Gains as US Inflation Data Fuels Rate Hike Bets

The US dollar gained strength on Wednesday following the release of US inflation data. The Personal Consumption Expenditures Price Index increased by 3.7% in the 12 months through July, unchanged from June and slightly above economists' estimates.

Market expectations for a rate hike from the Federal Reserve ahead of the Jackson Hole symposium rose to 40.1%, according to CME FedWatch. This increase was driven by comments from Boston Fed President Susan Collins, who stated that the Fed will need to raise interest rates soon unless data shows a continued decline in inflation.

ECB board member Isabel Schnabel also weighed in, stating that interest rates must rise further due to the strong euro zone economy and upside risks to inflation. The dollar index rose 0.21% to 99.12, with the euro down 0.16% at $1.1655.

George Vessey, lead FX and macro strategist at Convera in London, cautioned against chasing the rally, stating that it's hard to have a strong conviction in either direction due to competing narratives driving FX markets.