Oil Price Surge Puts Pressure on Stocks, Dollar Hopes Rest on August CPI

The price of Brent oil has surged towards $100 per barrel, putting pressure on stocks and bonds while giving the US Dollar a modest boost. However, the true test for the Dollar will come on Friday when the August Consumer Price Index (CPI) is released.

Brown Brothers Harriman's Elias Haddad notes that a strong CPI reading would all but seal a September rate hike by the Federal Reserve and underpin a firmer US Dollar. On the other hand, a cooler reading could trigger a dovish repricing and lead to Dollar weakness.

Even if a September Fed hike becomes a done deal, Haddad doubts that the US Dollar will make new cyclical highs due to tightening by other major central banks limiting policy divergence. The European Central Bank is widely expected to deliver a 25bps hike on Thursday.