Dollar Strengthens as Inflation Data Fuels Fed Rate-Hike Expectations

The US dollar strengthened against the euro and Swiss franc on Friday after fresh inflation data showed consumer prices accelerating, reinforcing expectations that the Federal Reserve could raise interest rates next week.

Data from the U.S. Labor Department showed the Consumer Price Index rose 0.4% in August, following a marginal 0.1% increase in July. Core CPI, which excludes food and energy prices, rose 2.4% year on year in August, compared with 2.5% in July.

The dollar gained 0.47% against the Swiss franc to 0.817 francs, putting it on course for a third consecutive weekly advance against the Swiss currency. The euro fell 0.13% to $1.15950, leaving the single currency on track for a weekly decline.

The Federal Reserve's upcoming meeting is likely to be influenced by these inflation numbers, with markets pricing in roughly an 86% probability of a 25-basis-point rate increase, up from about 72% a day earlier, according to the CME Group's FedWatch tool. This development tends to support a stronger dollar against all currencies.