Dollar Index Soars on Strong PCE Data, Market Prices in Rate Hike

The Dollar Index has been climbing out of its recent low, currently trading just above 99.00 and roughly a quarter of a percent higher after hitting a high of 99.25 at 14:00 GMT.

This move is largely attributed to the strong Personal Consumption Expenditures (PCE) inflation print, which came in at 3.7% year-over-year against a consensus of 3.6%. However, market analysts caution that this reading should not be interpreted as a clear indication of an imminent rate hike.

According to aggregated meeting probabilities, the Fed has a 40.14% chance of raising rates by September 16 and a 64.50% cumulative probability for a rate increase in October. The terminal has been marked down hard, with a second increase to the 4.00-4.25% range by December 9 now priced at 8.13%, down from 24.13% on August 10.

The market's shift towards pricing in a September rate hike is evident in the Dollar Index's price action, which has traveled nearly twenty points in the half hour following the PCE release and added another ten points into the high after 14:00 GMT.