The dollar rose Thursday as hotter-than-expected US wholesale inflation reinforced sticky price pressures, while the European Central Bank raised its deposit rate to fight surging energy-driven euro zone inflation. The euro slipped after the widely anticipated move, and the yen held near multi-month highs on Bank of Japan hike bets.
The U.S. dollar rose on Thursday after a hotter-than-expected increase in U.S. wholesale inflation reinforced expectations that price pressures remain sticky. At the same time, the European Central Bank raised interest rates as surging energy costs pushed euro zone inflation further above target.
ECB hikes as energy costs bite
The euro fell about 0.15%, reversing some of its recent strength. The ECB raised its deposit rate to 2.50% from 2.25%, its second rate hike this year. The move had been widely anticipated, limiting its immediate impact. Still, the single currency rose toward $1.1670, hovering near its highest level in over a week as money markets fully priced in the quarter-point increase.
A dramatic escalation in Persian Gulf military friction pushed Brent crude above $101 a barrel, threatening fresh cost-push inflation across energy-importing European economies. The energy shock shifted market consensus from a prolonged summer pause to a guaranteed September hike, lifting Eurozone bond yields and underpinning the euro's recent advance. According to Daniela Hathorn, senior market analyst at Capital.com: "whether this is sufficient insurance against the energy shock" remains the focus of Lagarde's press conference.
Dollar Index gains on Fed hike odds
The Dollar Index traded 0.2% higher to 99.008. Swaps markets now imply roughly a 62% probability of a 25-basis-point Federal Reserve rate hike at its Sept. 15-16 meeting, up from 60% earlier in the week, bolstered by last week's strong nonfarm payrolls report. Foreign exchange desks are watching Thursday's Producer Price Index data, followed by Friday's Consumer Price Index report, the final inflation gauge before the Fed's decision.
A benchmark U.S. 10-year yield near 4.85% provided baseline support. Gains were tempered after the Treasury announced a $6 billion debt buyback that disappointed investors expecting a larger injection.
Yen holds near seven-month high
The Japanese yen gained about 0.35% against the dollar, extending its rebound as traders continued to price in a Bank of Japan rate hike next week. Money markets broadly expect Governor Kazuo Ueda to deliver a 25-basis-point increase on Sept. 18, supported by revised Q2 GDP growth of 1.4% and elevated import inflation.
Japan's foreign securities holdings dropped by a record $87.8 billion in August to fund its recent joint intervention with Washington.
Source: Investing.com
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