Dollar Rises on Inflation Data as Fed Rate Hike Odds Reach 86%

The US dollar gained strength after the release of inflation data on Friday, which showed a rise in consumer prices. The Labor Department reported that the Consumer Price Index (CPI) increased by 0.4% in August, following a 0.1% gain in July. The core CPI, which excludes volatile food and energy prices, rose 2.4% year-over-year in August.

Markets are now pricing in an 86% chance of a 25 basis-point hike in interest rates by the Federal Reserve at their next meeting, up from around 72% a day earlier. US Treasury yields remained near multi-year highs, with the 2-year yield increasing by 5 basis points to 4.6%.

The dollar's gain was tempered by an escalating Middle East conflict, which pushed up oil prices and limited the US currency's advance against its peers. The euro fell 0.01% against the dollar, while the yen gained 0.51% against the greenback.