By Gertrude Chavez-Dreyfuss and Chibuike Oguh
NEW YORK (Reuters) – The U.S. dollar was broadly mixed in choppy trading on Wednesday after data showed underlying inflation in the world’s largest economy rose in August, reinforcing expectations that the Federal Reserve was likely to deliver a smaller interest rate cut 25 basis points will implement option next week.
The dollar gained against the Swiss franc, sterling and yen but fell against the euro, leaving the , a measure of the US unit’s value against six major currencies, 0.01% lower on the day came to 101.63.
Earlier in the session, the dollar came under pressure as investors increased chances that Democratic Vice President Kamala Harris would defeat Republican rival Donald Trump in the November 5 US presidential election, in the wake of a televised debate between the two candidates on Tuesday.
Data showed that the US consumer price index (CPI) rose 0.2% last month, similar to the increase in July. In the 12 months to August, the CPI rose 2.5%, the smallest annual increase since February 2021, and down from a 2.9% increase in July.
But excluding volatile food and energy components, the CPI climbed 0.3% in August, after rising 0.2% in July.
“The immediate conclusion is that this dramatically reduces the likelihood of a 50 basis point rate cut next week,” said Ben McMillan, director and chief investment officer at IDX Insights in Tampa, Florida.
“That was not unexpected, as I thought the market was quite aggressive in 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” metric, which includes core services excluding housing, rose 0.3% this month, which Jefferies said was the “largest consecutive increase” since April. This brings the three-month annualized interest rate to 1.95%, compared to 0.45% in the previous three months. This three-month figure rose to 4.18% in May and 8.16% in March, according to an investor note from Jefferies.
Given inflation data and with the Fed likely to cut rates by 25 basis points, the U.S. dollar may bounce back in September before losing ground later this year and into 2025, said Vassili Serebriakov, a currency strategist at UBS in New York.
“The fact that we think the Fed will only cut 25bp instead of 50bp makes risk sentiment somewhat defensive and in September we think the dollar could stage a bit of a corrective recovery before eventually starting to weaken again.” the year and then in 2025,” he said.
DOLLAR UP VERSUS FRANK, POUND
In afternoon trading, the dollar rose 0.54% against the Swiss franc to 0.85155 francs, after hitting a three-week high of 0.8544 after the inflation report.
The pound sterling fell 0.27% against the dollar to $1.3044. The pound was also previously under pressure due to data showing the British economy unexpectedly stagnating in July. However, the report did little to change expectations that the Bank of England would cut rates next week.
The dollar hit a high of the day at 142.55 yen, followed by the CPI figures, before falling 0.16% to 142.23. The yen got an extra boost earlier when Bank of Japan board member Junko Nakagawa reiterated that the central bank would continue to raise interest rates if the economy and inflation justified it.
The dollar earlier in the Asia session fell to 140.71 yen, the lowest level since late December.
The interest rate futures market is currently pricing in just a 13% chance of a 50 basis point easing from the Fed at its Sept. 17-18 meeting, down from about 33% late Tuesday, LSEG calculations showed. The probability of a 25 basis point rate cut next week was 87%, the data showed.
The market was still factoring in more than 100 basis points of 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 troubles.
She also got a boost from pop megastar Taylor Swift, who told her 283 million Instagram followers that she would support Harris and running mate Tim Walz in the election.
After the debate, online betting site PredictIt showed that Harris’s odds of winning had improved by 3 cents to 56 cents on a $1 payout, while Trump’s odds had fallen by 5 cents to 47 cents.
Investors generally see the dollar strengthening in the event of a Trump victory, as his proposed tariffs could support the currency and higher budget spending could raise interest rates.
FOREX – table currency bid prices September 11, 3:40 PM
Currency bid prices on September 11 3:40 PM EDT
Description RIC Last US Close Previous session Pct Change YTD Pct High bid Low bid
Dollar index 101.69 101.64 0.06% 0.32% 101.81 101.26
Euro/Dollar 1.1018 1.102 -0.02% -0.19% $1.1055 $1.1002
Dollar/yen 142.32 142.46 -0.09% 0.91% 142.5 140.72
Euro/yen 1.1018 156.95 -0.09% 0.76% 157.01 155.47
Dollar/Swiss 0.8517 0.847 0.54% 1.18% 0.8544 0.8423
Sterling/Dollar 1.3041 1.308 -0.26% 2.52% $1.3112 $1.3003
Dollar/Canadian 1.3573 1.361 -0.29% 2.38% 1.3623 1.3568
Aussie/Dollar 0.6667 0.6653 0.26% -2.17% $0.6674 $0.6622
Euro/Swiss 0.9383 0.9332 0.55% 1.06% 0.9386 0.9308
Euro/British Pound 0.8447 0.8424 0.27% -2.55% 0.8463 0.8422
New Zealand dollar/dollar 0.6131 0.615 -0.22% -2.9% $0.6155 0.6107
Dollar/Norway 10.863 10.8407 0.21% 7.18% 10.9122 10.7894
Euro/Norway 11.9701 11.9468 0.2% 6.65% 12.008 11.9198
Dollar/Sweden 10.3791 10.3734 0.05% 3.1% 10.414 10.3269
Euro/Sweden 11.4378 11.4313 0.06% 2.81% 11.4692 11.4115
