The dollar rose against the yen, euro and other currencies on Tuesday after stronger-than-expected U.S. inflation data prompted investors to bet that the Federal Reserve will need to remain aggressive in raising interest rates.
The dollar index, which tracks the greenback against its peers, rose 1.5% to 109.85, its biggest one-day percentage gain since March 2020.
It was still below last week’s two-decade peak of 110.79.
The index turned positive after the data was released.
The euro, pound and yen weakened sharply.
The euro was last down 1.5% against the US dollar at $0.9973 after hitting a near-month high of $1.0198 in the previous session.
The euro has traded below parity in 16 of the last 17 sessions.
U.S. consumer prices rose unexpectedly in August, and core inflation strengthened amid rising rents and health care costs, according to a Labor Department report.
“The data turned out to be much stronger than expected. “The fact that core inflation has been almost double that is particularly worrying,” said Carl Chamota, chief market strategist at Corpay in Toronto.
“This will for the moment dismiss the idea of pass-through inflation and anchor US yields and the dollar much higher. The key thing here is that we are now looking at almost certain odds of 75 basis points next week.”
After the report, interest rate futures traders abandoned any long-term bets that Fed policymakers would slow the pace of rate hikes at next week’s meeting.
They were betting on a third straight hike of 75 basis points, which would lift the Fed’s current rate range from 2.25% to 2.5% to 3% to 3.25%, and contracts on the rate now also reflect about a one-in-four chance surprises. -percentage increase at the meeting on September 20-21.
The dollar fell in recent sessions after strong gains, while the euro gained in recent sessions following sharp talks from the European Central Bank.
Last time, the dollar-yen exchange rate rose by 1.2% to 144.51.
Earlier, the Japanese currency found support in comments from officials who signaled that the government may take action to combat the yen’s excessive weakness.
Sterling also fell against the dollar. The pound was last down 1.6% at $1.1499.
Earlier in the day, it rose to a two-week high after Britain’s jobless rate fell to its lowest level since 1974, while wages excluding bonuses rose 5.2%, the highest in three months until August 2021.
In cryptocurrencies, Bitcoin was last down 9.48% at $20,277.00, while Ether was down 6.8% at $1,600.
