Dollar Rises for 4th Session

The dollar index rose for a fourth consecutive session to 99.6 on Monday, its highest level in about two weeks, as traders braced for this week’s FOMC decision. Traders see nearly an 89% chance that the Fed will deliver a 25-basis-point rate hike this week, which would mark its first increase in borrowing costs since 2023. Policymakers will also release fresh economic forecasts, with traders looking for any guidance on the future path of interest rates. Meanwhile, rising oil prices have added to inflationary pressures, worsening the inflation outlook and strengthening the case for further Fed tightening. Warnings from the CEOs of leading technology companies about the potential risks posed by AI also weighed on stocks, supporting demand for the dollar. The greenback strengthened broadly, with the biggest gains coming against the Japanese yen and the Australian dollar.

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.