NEW YORK: The US dollar was mixed overall on Wednesday in choppy trading after data showed underlying inflation in the world’s largest economy rose in August, reinforcing expectations that the Federal Reserve will likely undertake a smaller 25-basis-point interest rate cut next week.
The greenback posted gains against the Swiss franc, sterling, and euro, pushing the dollar index, a measure of the US unit’s worth against six major currencies, 0.1% higher on the day at 101.72.
Earlier in the session, the dollar came under pressure as investors raised the chances that Democrat Vice President Kamala Harris would beat Republican rival Donald Trump in the Nov. 5 presidential election in the wake of a televised debate between the two candidates on Tuesday.
Data showed that the US consumer price index (CPI) gained 0.2% last month, matching the advance in July. In the 12 months through August, the CPI advanced 2.5%, the smallest year-on-year rise since February 2021 and down from a 2.9% increase in July.
But excluding the volatile food and energy components, the CPI climbed 0.3% in August after rising 0.2% in July.
“The immediate takeaway is that this dramatically reduces the likelihood of a 50-basis-point rate cut” next week, said Ben McMillan, a principal and the chief investment officer at IDX Insights in Tampa, Florida.
“That wasn’t unexpected because I thought the market was pretty aggressive at pricing in a 50-basis-point rate cut in September anyway. This reaffirms what the Fed is really focused on - the jobs numbers. This makes the jobs numbers, and the revisions to those numbers, even more important.”
The “supercore” reading, which is core services excluding housing, rose 0.3% for the month, which Jefferies said was the “biggest sequential increase” since April. This brings the three-month annualized rate to 1.95% from 0.45% in the previous three months. This three-month figure rose as high as 4.18% in May and 8.16% in March, according to Jefferies.
In midday trading the dollar was up 0.4% against the Swiss franc at 0.8506 franc, after hitting a three-week high of 0.8544 following the inflation report.
Sterling fell 0.4% against the dollar to $1.3022. The pound was also weighed down earlier by data showing the UK economy stagnated unexpectedly in July. The report, however, did little to shift expectations for the Bank of England to lower interest rates next week.
The dollar hit the day’s high of 142.54 yen following the CPI numbers, before sliding 0.6% to 141.85. The yen got an extra boost earlier when Bank of Japan board member Junko Nakagawa reiterated that the central bank would keep raising rates if the economy and inflation justified it.
The dollar earlier in the Asia session fell to 140.72 yen, its lowest level since late December.
Following the US data, the rate futures market has priced in just a 15% chance of a 50-basis-point easing by the Fed at the Sept. 17-18 meeting, down from about 33% late on Tuesday, LSEG calculations showed.
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