Dollar Rises as Inflation Data Triggers Rate Hike Expectations

The US dollar strengthened on Thursday as inflation data prompted increased expectations of a Federal Reserve rate hike. The Consumer Price Index (CPI) and Producer Price Index (PPI) reports showed price pressures in the economy, leading to a jump in Fed interest rate odds.

The PPI report revealed a 0.4% month-over-month increase in August, exceeding consensus estimates of 0.4%. The core PPI also rose 0.2% M/M and 4.6% Y/Y. These figures indicate a resilient US labor market and an economy with rising price pressures.

FedWatch tool data showed the probability of a quarter-point rate hike by the Federal Open Market Committee (FOMC) on September 16 increased to 74%, up from about 64%. Higher interest rates tend to strengthen the dollar, contributing to its rise.

The euro declined after the European Central Bank (ECB) raised its key policy rate by 25 basis points. The bank cited ongoing pressure from energy price increases linked to the Middle East conflict.