US Inflation Heats Up Again... Dollar and Interest Rate Hike Bets 'Rapidly Accelerate'

▲ Dollar (USD), US Federal Reserve (Fed), Interest Rate Hike/AI Generated Image

As US August inflation came in hotter than expected, the probability of a September interest rate hike surged to 86-87%, and the dollar also strengthened.

According to FXLeaders on September 14 (local time), the US Dollar Index moved around 99.30. The Dollar Index fluctuated between 98.88 and 99.30 during Asian trading hours, attempting to rise for three consecutive trading days. However, it did not lead to a strong upward trend as it failed to break out of the 98.25-99.80 range since mid-August.

The key background to the dollar's strength is US inflation. The August Consumer Price Index (CPI) rose 0.4% month-over-month and 3.4% year-over-year. The core Consumer Price Index rose 0.3% month-over-month, exceeding market expectations. As inflationary pressures were confirmed, the Federal Reserve's (Fed) outlook for interest rate hikes also rapidly strengthened.

The probability of a 0.25 percentage point interest rate hike on September 16, as reflected by the Chicago Mercantile Exchange (CME) FedWatch, surged to approximately 86-87%. This is more than a 27 percentage point increase from roughly 59% a week ago. However, FXLeaders explained that the dollar has not succeeded in a clear upside breakout, as the view remains that the interest rate hike outlook has already been largely priced in.

Oil prices are also increasing inflationary pressure. Brent crude surpassed $107 per barrel amid geopolitical supply risks. The Bank of Japan (BOJ) is facing a policy decision on the 18th, and the dollar-yen exchange rate rose to around 153.49, approaching a seven-month high. The Bank of England's (BOE) interest rate decision is scheduled for the 17th.

Despite the probability of an interest rate hike rising to approximately 86-87%, the Dollar Index remains within the 98.25-99.80 range formed since mid-August. The market is anticipating consecutive monetary policy decisions, starting with the Fed on the 16th, followed by the Bank of England on the 17th, and the Bank of Japan on the 18th.

[Article Key Summary]

-The US August Consumer Price Index rose 0.4% month-over-month and 3.4% year-over-year, boosting the Fed's outlook for interest rate hikes.

-The probability of a 0.25 percentage point interest rate hike in September surged from approximately 59% a week ago to 86-87%.

-The Dollar Index rose to around 99.30 but has not yet broken out of the 98.25-99.80 range formed since mid-August.

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