Dollar Surges as PPI Data and ECB Rate Hike Boost Fed Hike Bets

The US dollar strengthened against its major peers after August's producer price data revealed a year-over-year jump to 5.4% from an upwardly revised 4.8%, and core rate rose to 4.6% y/y from 4.3%. The data supported expectations of a September Fed hike, increasing the probability to 68%. A second 25bps increase was brought forward to January.

The spotlight now shifts to today's US CPI report for August, which could further steepen the implied path if consumers absorbed the increased prices producers paid. With Treasury yields rising and oil prices above $100 per barrel, a stronger dollar is expected, especially if CPI numbers exceed analysts' consensus estimates.

Meanwhile, the ECB raised its interest rates by 25bps, citing growing concerns about inflation remaining elevated due to Middle East tensions. The Bank upgraded its inflation projections, with President Lagarde warning of secondary effects on other prices and wages in case the war intensifies further.