Dollar rises against euro and Swiss franc after US inflation data

Dollar Climbs Against Euro, Franc as US Inflation Fuels Rate Hike Expectations

US Inflation Data Drives Currency Movements

By Chibuike Oguh

NEW YORK, Sept 11 (Reuters) - The dollar edged higher against the euro and Swiss franc on Friday after U.S. inflation data showed a rise in consumer prices, reinforcing expectations that the Federal Reserve will raise interest rates next week.       

The dollar initially gained after the data release. However, investor sentiment remained fragile as an escalating Iran war pushed up oil prices, limiting the U.S. currency's advance and leaving it little changed against its peers.

Inflation Figures and Market Response

Labor Department data showed the U.S. Consumer Price Index increased 0.4% in August after edging up 0.1% in July. Core CPI increased 2.4% year-on-year in August after rising 2.5% in July.  

The euro was down 0.13% at $1.15950 and was on track for a weekly loss. The dollar strengthened 0.47% to 0.817 against the franc. It was set for its third straight weekly gain against the Swiss currency.

Expert Commentary on Rate Hike Odds

"The main thing we're looking at is core CPI, which seems to be accelerating," said Juan Perez, director of trading at MonexUSA.

"What that does do — which tends to help the U.S. dollar go up against all currencies — is increase the interest rate probability or odds that the Federal Reserve will raise rates at their next meeting."

Markets are pricing in about an 86% chance of a 25 basis-point hike, compared with around 72% a day earlier, according to the CME's FedWatch tool.

U.S. Treasury yields remained near multi-year highs, with the 2-year yield, which typically moves in step with Fed rate expectations, up 7.75 basis points at 4.63%.

Oil Prices and Broader Inflation Concerns

Oil Market Developments

OIL REMAINS ABOVE $100

Oil prices fell but remained above $100 a barrel, while diesel prices were at record highs, suggesting inflation was set to remain elevated and broaden. 

Brent crude oil prices gained about 8% for the week after Iran-aligned Houthis seized control of Yemen's port city of Mocha and advanced down the Red Sea coast to strategic islands.

Brent crude futures settled down 2.81% at $104.61 a barrel.

Dollar Index Performance

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was flat at 99.12. It was set to drop 0.16% on the week — its second consecutive weekly drop.

Yen Strength and Bank of Japan Outlook

Yen's Recent Gains

YEN GAINS

The yen was on track for a second consecutive weekly gain against the U.S. dollar and was last up 0.45% at 153.69 per dollar.

Bank of Japan Policy Expectations

The Bank of Japan is expected to raise interest rates next week and could signal a faster pace of future tightening if rising price pressures increase the risk of inflation overshooting its target, four sources familiar with its thinking said.

Japan's currency strengthened further after data showed Japanese wholesale inflation remained elevated in August, reinforcing the case for a rate hike this month.

The euro weakened 0.59% against the yen to 178.22. 

Reporting Credits

(Reporting by Chibuike Oguh in New York; Editing by Chizu Nomiyama, Susan Fenton, Rod Nickel)