US dollar rises after August inflation data

The US dollar rose on Wednesday (Sep 11) 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 rate cut of 25 basis points later this month.

The dollar index gained 0.1 per cent to 101.79 as the euro fell versus the greenback top US$1.1005.

The consumer price index grew 0.2 per cent last month after climbing 0.2 per cent in July, data showed. Excluding the volatile food and energy components, the CPI climbed 0.3 per cent in August after rising 0.2 per cent in July.

The dollar earlier fell to its lowest against the yen this year after investors upped the chances of Democrat Kamala Harris beating Republican rival Donald Trump in November’s presidential election after a scheduled debate.

The dollar came under broad pressure, but fell most against the yen, which got an extra boost earlier when Bank of Japan board member Junko Nakagawa reiterated the central bank would keep raising rates if the economy and inflation justified it.

The dollar dropped as much as 1.24 per cent to 140.71 yen, a level not seen since Dec 28, before trading at 141.71 yen, down 0.5 per cent on the day.

The dollar-yen pair tends to track long-term Treasury yields , which extended an overnight decline to touch their lowest since June 2023, at 3.605 per cent.

Investors broadly see the dollar strengthening in the event of a victory by Trump, as tariffs might prop up the currency and higher fiscal spending could boost interest rates.

Sentiment on Wednesday was fragile, drawing flows out of the dollar and into the likes of the yen, the Swiss franc and gold.

“There’s definitely risk-off sentiment that is leading to caution,” said XTB research director Kathleen Brooks.

“There’s a lot of changes in this economic cycle – monetary, with monetary policy changes, and also political – and that’s what is adding to the sense of unease.”

Vice President Harris put former President Trump on the defensive in a combative debate, with attacks on abortion limits, his 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 she would back Harris and running mate Tim Walz in the Nov 5 election.

Following the debate, online betting site PredictIt showed Harris’ chances of winning improved 3 US cents to 56 US cents for a US$1 payout, while Trump’s chances dropped 5 US cents to 47 US cents.

The Swiss franc strengthened for a second day, pushing the dollar down 0.1 per cent to 0.8462 francs.

The euro rose 0.3 per cent to US$1.1052, recovering from an overnight slide to US$1.10155, its lowest since Aug 19.

“The FX market is showing some further signs of risk aversion this morning although more from the strong performance of the safe-haven currencies rather than poor performance of the high-beta currencies,” MUFG strategist Derek Halpenny said.

Among the high-beta – or more volatile – currencies, sterling was barely up 0.1 per cent at US$1.30905 after data showed the UK economy stagnated unexpectedly in July, although the report did little to shift expectations for the Bank of England to lower rates next week.

The US Federal Reserve looks set to ease policy on Sept 18 for the first time in more than four years, although traders are split on the size of the expected rate cut.

Fed funds futures indicate a 73 per cent chance of a standard 25-basis point reduction, and a 27 per cent chance of a super-sized 50 bps, according to the CME’s FedWatch tool.

A day earlier, markets were attaching a 67 per cent chance of a quarter-point cut and a 33 per cent chance of a half-point cut. REUTERS