Dollar Retreats from Post-CPI High as Rate Hike Bets Surge

The US Dollar Index (DXY) retreated from its post-CPI high on Friday as traders await the Federal Reserve's decision on interest rates. The index dropped to around 99.11 after briefly rising to 99.36 in response to the latest Consumer Price Index (CPI) report, which showed a 0.4% MoM increase in August, matching market expectations.

The CPI report also revealed that core inflation increased 0.3% MoM, above the forecasted 0.2%, while annual core inflation eased to 2.4% from 2.5%. The sharp decline in Oil prices pulled longer-dated US Treasury yields back from multi-year highs, with the benchmark 10-year yield trading near 4.94%.

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, up from 67% earlier in the day. However, the US Dollar struggles to capitalize on the hawkish repricing due to elevated Oil prices and concerns about their persistence.