Dollar Surges as Strong Economic Data Reignites Rate-Hike Bets

The US dollar strengthened against major currencies in New York trading on August 26, after the Commerce Department's July Personal Consumption Expenditures (PCE) price index came in above market expectations. The index rose 3.7% year-over-year, exceeding the 3.6% increase forecasted by economists.

The core PCE price index, which excludes volatile food and energy components, also rose 3.3% year-over-year, flat from the previous month but accelerating to a 0.2% month-over-month gain from June's 0.1% increase.

The strong economic data triggered dollar buying, with the yen falling 0.13% to 159.37 per dollar in late trading. The probability of additional Fed rate hikes rose in interest rate futures markets, with CME FedWatch indicating a 40.1% chance of a 0.25 percentage point or larger rate hike at the September 15-16 Federal Open Market Committee (FOMC) meeting.

Market attention has shifted to the economic symposium being held in Jackson Hole, Wyoming, from August 27 through 29, where Fed Chair Warsh is scheduled to speak on August 28. The focus will be on whether he delivers concrete signals about the future path of monetary policy.