The dollar edged higher against the Swiss franc on Friday after closely watched U.S. inflation data showed a rise in consumer prices, reinforcing expectations that the Federal Reserve will raise interest rates next week.
The dollar initially gained as the data boosted the likelihood of a rate hike. However, investor sentiment remained fragile as an escalating Middle East conflict pushed up oil prices, limiting the U.S. currency's advance and leaving it little changed against its peers.
Oil, yen and other currency moves
Oil prices fell but remained above $100 a barrel, while diesel prices were at record highs, suggesting inflation was set to remain elevated and broaden out.
Brent crude futures were down 2.2% at $105.12 a barrel.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.04% to 99.04. It was set to drop 0.16% on the week — its second consecutive weekly drop.
The yen was on track for a second consecutive weekly gain against the U.S. dollar and was last up 0.51% at 153.58 per dollar.
The Bank of Japan is expected to raise interest rates next week and could signal a faster pace of future tightening if rising price pressures increase the risk of inflation overshooting its target, four sources familiar with its thinking told Reuters.
Japan's currency strengthened further after data released on Friday showed Japanese wholesale inflation remained elevated in August, reinforcing the case for a rate hike this month.
The euro weakened 0.57% against the yen to 178.28.
Inflation data supports rate-hike expectations
Labor Department data showed that the U.S. consumer price index increased 0.4% in August after edging up 0.1% in July. The so-called core CPI increased 2.4% year-on-year in August after rising 2.5% in July.
The dollar rose broadly against the euro and Swiss franc before giving back some of those gains immediately after the data.
"The main thing we're looking at is core CPI, which seems to be accelerating," said Juan Perez, director of trading at MonexUSA.
"What that does do - which tends to help the U.S. dollar go up against all currencies - is increase the interest rate probability or odds that the Federal Reserve will raise rates at their next meeting."
Markets price near-certain Fed action as yields stay elevated
Markets are now pricing in about an 86% chance of a 25 basis-point hike, compared with around 72% a day earlier, according to the CME's FedWatch tool.
U.S. Treasury yields remained near multi-year highs, with the 2-year yield, which typically moves in step with Fed rate expectations, up 5 basis points at 4.6%.
The euro was down 0.01% at $1.1611 and was on track for a weekly loss. The Swiss franc strengthened 0.22% to 0.814 against the franc. It was set for its third straight weekly gain against the Swiss currency.
TLT•
