Dollar Retreats from CPI High as Yields Pull Back
The US Dollar Index retreated from its post-CPI high on Friday as longer-dated Treasury yields pulled back. This was despite the US Consumer Price Index (CPI) report, which showed a 0.4% monthly increase in August, matching market expectations and accelerating sharply from the previous month.
Annual inflation held steady at 3.4%, also in line with forecasts. Core CPI, which excludes volatile food and energy prices, increased 0.3% MoM, above the 2% forecast and the previous reading of 0.2%. However, annual core inflation eased to 2.4% from 2.5%, matching expectations.
Gasoline prices rose 3.9% and accounted for more than one-third of the monthly increase in headline inflation. Following the release, traders raised their bets on a rate hike at the Fed's September 15-16 meeting, with the CME FedWatch Tool showing an 88% chance of a 25-basis-point increase.
The US Dollar struggles to capitalise on the hawkish repricing as a sharp decline in Oil prices pulled longer-dated Treasury yields back from multi-year highs. The benchmark 10-year US Treasury yield trades near 4.94%, its highest level in around three years.