CPI Statistics Stabilize the Dollar

Early on Wednesday in European trading, the U.S. dollar steadied. The new U.S. inflation data boosted the dollar.

The Dollar Index (DXY) measures the dollar’s value against six currencies. It was steady at 109.510 at 03:00 ET (07:00 GMT); after rising 1.5% overnight. In particular, the so-called “core CPI” increased by 0.6%. It exceeded expectations twice, raising the annual core inflation rate from 5.9% in July to 6.3%.

Should We Expect a Rate Rise?

This guarantees the Fed will raise interest rates again when its officials gather the following week. Markets have factored that the Fed would boost rates by 75 basis points the following week. Still, they are considering a full 1% rate rise. USD/JPY saw a drop of 0.8% to 143.42 as the yen recovered from a 24-year low overnight.

According to Japanese Finance Minister Shunichi Suzuki, the government may decide to support the currency if previous yen movements have been rapid and one-sided. After overnight weakening, the EUR/USD increased 0.1% to 0.9976, holding below parity. Even though the ECB raised interest rates by a record-breaking 75 bps last week and other policymakers hinted that further increases would follow, the euro fell.

Gediminas Simkus, the head of the central bank of Lithuania and a member of the Governing Council, said on Tuesday that the central bank should increase interest rates by at least a half-point at its meeting in October, continuing the hawkish attitude. Strong inflation tendencies, he declared. Therefore, next month “needs” at least a 50 basis-point rise.

Despite the UK’s inflation rate falling back under 10% in August as declining gasoline costs helped to lessen the impact of the ongoing cost of the living problem, the GBP/USD exchange rate increased by 0.1% to 1.1498 to rebound from a 1.6% overnight decline. However, the decline in gasoline costs may have overstated the headline data as sterling losses on Wednesday were constrained by high core inflation.