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
Adds analyst comment, impact of presidential debate, graphic; updates prices
By Gertrude Chavez-Dreyfuss
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 undertake a smaller 25-basis-point interest rate cut next week.
The greenback posted gains against the Swiss franc, sterling, and euro, pushing the dollar index, a measure of the U.S. unit's worth againstsix major currencies, 0.1% higher on the day at 101.72 =USD.
Earlier in the session, the dollar came under pressure asinvestors raisedthe chances that Democrat Vice President KamalaHarris would beat Republican rival Donald Trump in the Nov. 5 presidential election in the wake of a televiseddebate 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 chiefinvestment 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-pointrate 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 Jefferies.
"We are not seeing evidence that inflation is reaccelerating, but there is less evidence of continued disinflation in this data compared with the prior three months,"Thomas Simons, senior U.S. economist at Jefferies in New York, wrote.
DOLLAR UP VERSUS FRANC, POUND
In middaytrading the dollar was up 0.4% against the Swiss franc at 0.8506 franc CHF=EBS, after hitting a three-week high of 0.8544 following the inflation report.
Sterling fell 0.4%against the dollar to $1.3022GBP=D3. The pound was also weighed down earlier by data showing theUK economy stagnated unexpectedly in July. The report, however,did little to shift expectations for the Bank of England to lower interest ratesnext week.
The dollar hit the day's high of 142.54 yen following the CPI numbers, before sliding 0.6%to 141.85JPY=EBS. The yen got an extra boost earlier when Bank of Japan board member Junko Nakagawa reiterated that thecentral bank would keep raising rates if the economy and inflation justified it.
The dollar earlier in the Asia session fell to 140.72 yen, its lowest level since late December.
Following the U.S. data, the rate futures market has priced in just a 15% chance of a 50-basis-point easing by the Fed at the Sept. 17-18 meeting, down from about 33% late on Tuesday, LSEG calculations 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 frompop megastar Taylor Swift, who told her 283 million Instagram followers that she would back Harris and running mate Tim Walz inthe 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.
Currency bid prices at 11 September 04:11 p.m. GMT | |||||||
Description | RIC | Last | U.S. Close Previous Session | Pct Change | YTD Pct | High Bid | Low Bid |
Dollar index | =USD | 101.67 | 101.64 | 0.04% | 0.30% | 101.81 | 101.26 |
Euro/Dollar | EUR=EBS | 1.1016 | 1.102 | -0.03% | -0.19% | $1.1055 | $1.1002 |
Dollar/Yen | JPY=D3 | 141.87 | 142.46 | -0.42% | 0.58% | 142.5 | 140.72 |
Euro/Yen | EURJPY= | 1.1016 | 156.95 | -0.41% | 0.43% | 157.01 | 155.47 |
Dollar/Swiss | CHF=EBS | 0.8504 | 0.847 | 0.41% | 1.05% | 0.8544 | 0.8423 |
Sterling/Dollar | GBP=D3 | 1.3034 | 1.308 | -0.34% | 2.44% | $1.3112 | $1.3003 |
Dollar/Canadian | CAD=D3 | 1.3588 | 1.361 | -0.15% | 2.52% | 1.3623 | 1.3574 |
Aussie/Dollar | AUD=D3 | 0.6653 | 0.6653 | 0.03% | -2.4% | $0.6674 | $0.6622 |
Euro/Swiss | EURCHF= | 0.9369 | 0.9332 | 0.4% | 0.89% | 0.9381 | 0.9308 |
Euro/Sterling | EURGBP= | 0.8451 | 0.8424 | 0.32% | -2.5% | 0.8463 | 0.8422 |
NZ Dollar/Dollar | NZD=D3 | 0.6122 | 0.615 | -0.42% | -3.09% | $0.6155 | 0.6107 |
Dollar/Norway | NOK= | 10.858 | 10.8407 | 0.16% | 7.13% | 10.9122 | 10.7894 |
Euro/Norway | EURNOK= | 11.9636 | 11.9468 | 0.14% | 6.59% | 12.008 | 11.9198 |
Dollar/Sweden | SEK= | 10.3825 | 10.3734 | 0.09% | 3.13% | 10.414 | 10.3269 |
Euro/Sweden | EURSEK= | 11.4382 | 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; Additional reporting by Amanda Cooper in London and Oguh Chibuike in New York; Editing by Angus MacSwan and Paul Simao
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