Dollar Edges Higher Ahead of Fed Meeting

The dollar index rose toward 99.5 on Monday, gaining for a fourth consecutive session as investors prepared for the upcoming Federal Reserve policy meeting while assessing the impact of surging oil prices. Markets are currently pricing in an 86% probability that the Fed will raise its policy rate by 25 basis points on Wednesday, with another hike expected later this year. Data released Friday showed US consumer inflation held steady at 3.4% in August, matching July’s reading and market expectations, while underlying inflation came in above forecasts as core CPI rose 0.3% month-on-month. US producer prices also accelerated in August, while labor-market data pointed to continued resilience in employment. Higher oil prices added further inflationary pressure after Saudi Arabia shut down the critical East-West pipeline, which provides an alternative route around the Strait of Hormuz.

The dollar index rose above 99 on Friday, extending gains for the third session, after US inflation data strengthened expectations that the Federal Reserve could raise interest rates next week. Core CPI, excluding food and energy, increased 0.3% in August from the previous month, slightly above expectations, while the annual rate rose 2.4%, in line with forecasts and the lowest since March 2021. Headline consumer prices increased 0.4% month-on-month and 3.4% from a year earlier, reflecting higher energy costs. The data suggested that inflation remains persistent amid elevated oil prices, tariffs and continued investment in data centres. Markets subsequently priced in around a 90% probability of a rate hike at the Fed’s September 15-16 meeting. Meanwhile, oil prices remain a key concern, having recently moved above $100 a barrel as Middle East and Russia-Ukraine conflicts disrupt supplies.

The dollar index held above 99 on Friday after rebounding in the previous session, as investors prepared for the latest US consumer price index report that could cement bets for a Federal Reserve rate hike next week. Data released Thursday showed US producer inflation accelerated last month as the Iran war pushed wholesale energy prices higher. Markets are now pricing in roughly a 71% probability of a 25-basis-point Fed rate increase next week, up from 61% before the PPI data. Treasury yields also jumped after the US Treasury Department's first expanded buyback operation yielded lower-than-expected purchases. Meanwhile, oil prices surged above $100 a barrel as the US and Iran showed little indication of backing down from the conflict, raising concerns over prolonged disruptions to global energy supplies and persistent inflationary pressures.