Dollar Surges on Inflation Data as Rate Hike Odds Soar to 86%

The US dollar strengthened against several major currencies on Friday after the release of inflation data that showed a rise in consumer prices. This increase reinforced expectations that the Federal Reserve will raise interest rates next week, further supporting the greenback.

The Labor Department's data indicated that the US Consumer Price Index (CPI) increased 0.4% in August, following a 0.1% gain in July. The core CPI rose 2.4% year-over-year in August after increasing 2.5% in July.

As a result of this data, markets are now pricing in an approximately 86% chance of a 25-basis-point hike at the next Federal Reserve meeting, up from around 72% a day earlier, according to the CME's FedWatch tool. US Treasury yields remained near multi-year highs, with the 2-year yield increasing by 5 basis points to 4.6%

However, investor sentiment remains fragile due to escalating tensions in the Middle East and subsequent increases in oil prices. The dollar initially gained on the inflation data but gave back some gains as investors became cautious.