US dollar mixed after inflation report supports smaller Fed rate cut
US core inflation rises 0.3% in August
US dollar hits three-week high versus Swiss franc
Dollar falls to lowest level since late December
Fed funds futures lower odds of 50-basis-point cut this month
Updates as of 3:27 p.m. ET/1927 GMT
By Gertrude Chavez-Dreyfuss and Chibuike Oguh
NEW YORK, Sept 11 (Reuters) -The U.S. 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 implement a smaller25-basis-point interest rate cut option nextweek.
Thegreenback postedgains against the Swiss franc, sterling, and yen, but slipped against the euro, nudgingthe dollar index, a measure of the U.S. unit's worth against six major currencies =USD, 0.01% loweron the day to 101.63.
Earlier in the session, the dollar came under pressure as investors raised the chances that Democrat VicePresident Kamala Harris would beat Republican rival Donald Trump in the Nov. 5 U.S.presidential election in the wake of a televised debate between the two candidates on Tuesday.
Data showed that the U.S. 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 a Jefferies investor note.
Given the inflation data and with the Fed more likely to cut rates by 25 basis points, the U.S. dollar will possibly rebound in September before losing ground later this year and into 2025, said Vassili Serebriakov, FX strategist at UBS in New York.
"The fact that we think that the Fed will only cut 25 bps rather than 50 bps, risk sentiment looks a bit defensive and in September, we think the dollar can have a bit of a corrective bounce. Then it starts weakening again into the end of the year and then in 2025," he said.
DOLLAR UP VERSUS FRANC, POUND
In afternoon trading, the dollar was up 0.54% against the Swiss franc at 0.85155 franc CHF=EBS, after hitting a three-week high of 0.8544 following the inflation report.
Sterling fell 0.27%against the dollar to $1.3044 GBP=D3. 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 142.55 yen following the CPI numbers, before sliding 0.16%to 142.23 JPY=EBS. 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 140.71yen, its lowest level since late December.
The rate futures market has currently pricedin just a 13% chance of a 50-basis-point easing by the Fed at its Sept. 17-18 meeting, down from about 33% late on Tuesday, LSEG calculations showed. The probability of a 25-basis-point rate cut next week stood at 87%, the data showed.
The market still factored in more than 100 basis points in cuts this year.
In the political arena, Harris put Trump on the defensive in a combative debate, with attacks on abortion restrictions, the Republican former president's fitness for office and his myriad legal problems.
She also received a boost from pop megastar Taylor Swift, who told her 283 million Instagram followers that she would back Harris and running mate Tim Walz in the election.
Following the debate, online betting site PredictIt showed Harris' chances of winning had improved by 3 cents to 56 cents for a $1 payout, while Trump's chances dropped 5 cents to 47 cents.
Investors broadly see the dollar strengthening in the event of a victory by Trump, as his proposed import tariffs might prop up the currency and higher fiscal spending could boost interest rates.
FOREX - table currency bid prices 11 September 3:40 p.m.
Currency bid prices at 11 September 03:40 p.m. EDT |
Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid |
Dollar index =USD 101.69 101.64 0.06% 0.32% 101.81 101.26 |
Euro/Dollar EUR=EBS 1.1018 1.102 -0.02% -0.19% $1.1055 $1.1002 |
Dollar/Yen JPY=D3142.32 142.46 -0.09% 0.91% 142.5 140.72 |
Euro/Yen EURJPY= 1.1018 156.95 -0.09% 0.76% 157.01 155.47 |
Dollar/Swiss CHF=EBS 0.8517 0.847 0.54% 1.18% 0.8544 0.8423 |
Sterling/Dollar GBP=D31.3041 1.308 -0.26% 2.52% $1.3112 $1.3003 |
Dollar/Canadian CAD=D31.3573 1.361 -0.29% 2.38% 1.3623 1.3568 |
Aussie/Dollar AUD=D30.6667 0.6653 0.26% -2.17% $0.6674 $0.6622 |
Euro/Swiss EURCHF= 0.9383 0.9332 0.55% 1.06% 0.9386 0.9308 |
Euro/Sterling EURGBP= 0.8447 0.8424 0.27% -2.55% 0.8463 0.8422 |
NZ Dollar/Dollar NZD=D30.6131 0.615 -0.22% -2.9% $0.6155 0.6107 |
Dollar/Norway NOK= 10.863 10.8407 0.21% 7.18% 10.9122 10.7894 |
Euro/Norway EURNOK= 11.9701 11.9468 0.2% 6.65% 12.008 11.9198 |
Dollar/Sweden SEK= 10.3791 10.3734 0.05% 3.1% 10.414 10.3269 |
Euro/Sweden EURSEK= 11.4378 11.4313 0.06% 2.81% 11.4692 11.4115 |
World FX rates https://tmsnrt.rs/2RBWI5E
Inflation gauges https://reut.rs/3TpX1Cm
Reporting by Gertrude Chavez-Dreyfuss and Chibuike Oguh in New York; Additional reporting by Amanda Cooper in London; Editing by Marguerita Choy and Paul Simao
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