Dollar Strengthens Amid Softer Inflation and Fed Caution

The US Dollar has continued to strengthen, reaching its June year-to-date high of around 101.80 on the Dollar Index despite softer US inflation data.

According to MUFG's Lee Hardman, the upward momentum in the dollar is likely due to revised core PCE figures showing slower underlying price pressures, reducing the likelihood of aggressive Federal Reserve rate hikes.

New York Fed President Williams' statement that 'there is no need for urgency' following this month's rate hike has also contributed to the dollar's strength, as it suggests the Fed will take their time to review additional data before tightening policy further.

The three-month annualized rate of growth in the Fed's preferred measure of underlying inflation pressures has fallen to just 2.1%, while the six-month annualized rate of growth has slowed to 2.7% in August down from 3.3% in February, providing some reassurance that there has been progress towards meeting the inflation goal.