Dollar Strength Endures Amid Softer Inflation Data

The US dollar has continued its upward momentum overnight, pushing closer to its year-to-date high of 101.80. Despite recent Fed rhetoric and softer US inflation data, the dollar's strength endures.

New York Fed President Williams stated that there is 'no need for urgency' following this month's rate hike, and they can take their time to review additional data before tightening policy further.

The August PCE deflator report revealed a core increase of 0.2% month-over-month, with bigger-than-expected downward revisions to prior months. As a result, the annual rate of change came in at 3.0%, compared to a consensus forecast of 3.3%. The three-month annualized rate of growth has fallen to just 2.1%, and the six-month annualized rate of growth slowed to 2.7% in August from 3.3% in February.

The softer PCE deflator report makes it less likely that the Fed will hike rates as aggressively as currently priced into the US market, which is expecting three to four hikes in the year ahead. The probability of back-to-back hikes next month has continued to fall.