The dollar surged to a near two-week high as traders priced in a near-certain Federal Reserve rate hike this week, while the euro slid to a two-week low near $1.1500. The move came amid a fresh spike in oil prices and sticky US inflation data, ahead of a high-stakes week of central bank decisions.
The Dollar Index rose 0.55% to trade at 99.55 on Monday, recovering sharply after snapping two straight weeks of modest declines. The euro fell 0.5% to a near two-week low at $1.1500, as traders weighed euro area stagflation risks against the surging greenback following last week's European Central Bank rate hike to 2.50%.
Fed hike bets near certainty
Financial markets are pricing an 86% probability that the Fed will raise its benchmark rate by 25 basis points at its Sept. 15-16 meeting, according to CME FedWatch. The Federal Reserve takes center stage Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Friday, a sequence poised to reshape currency flows heading into the fourth quarter.
The repricing follows Friday's US consumer price index report, which showed headline inflation hold firm at 3.4% while core month-on-month CPI ticked up to 0.3%, briefly sending the 10-year Treasury yield past the 5% threshold. Swaps traders are also building in strong odds of a follow-up Fed rate hike in December.
Yen holds near seven-month high
The dollar advanced 0.65% against the Japanese currency to trade around 154.55, even as the yen consolidated after several sessions of strong gains. Despite Monday's pullback, the yen remained anchored near seven-month highs touched last week, holding a 4% gain intact for September.
The Bank of Japan is widely expected to deliver a 25-basis-point rate hike Friday, lifting its policy rate to 1.25%. Expectations of faster BOJ tightening, capital repatriation by domestic institutional allocators, and memories of Tokyo's record $96.4 billion joint currency intervention have prompted speculators to flip net long on the yen for the first time since February.
Oil spike adds to hawkish trajectory
Adding fuel to the hawkish central bank trajectory, Brent crude jumped 3% on Monday to near $112 a barrel after fresh strikes on Saudi Arabian pipeline infrastructure and Houthi advances in the Red Sea worsened Persian Gulf supply bottlenecks.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
