Dollar near eight-day high as US data lifts Fed hike bets

The US dollar experienced a surge to its highest level in eight days on Thursday, following the release of inflation and economic data that bolstered expectations of a Federal Reserve rate hike, in the lead-up to the Jackson Hole central bankers symposium. Markets also awaited insights from central banker Ryozo Himino of the Bank of Japan, who would deliver a speech and press conference on Thursday, offering clues about a potential September rate hike and the scale of future tightening measures.

According to US Commerce Department data, the Personal Consumption Expenditures Price Index increased by 3.7% over the past year, holding steady from June and surpassing the 3.6% estimate from economists surveyed by Reuters. On a month-to-month basis, PCE rose by 0.2%, slightly higher than the 0.1% consensus, after slipping by 0.1% in June.

Despite this positive inflation reading, expectations for a Federal Reserve rate increase by the end of the year remained alive, though the upcoming speech by Chairman Kevin Warsh at the Jackson Hole event would be a critical gauge. The dollar index, representing the greenback's value against a basket of currencies, including the yen and the euro, climbed 0.21% to 99.13, marking its peak since August 19.

Against the yen, the dollar reached 159.23, having reclaimed much of its intervention gains but still far from a multi-decade low of around 164, as traders awaited Himino's speech scheduled for 0130 GMT. Himino had previously indicated that policymakers would deliberate on the possibility of raising interest rates during the upcoming meeting, suggesting if similar language is employed, it could signal a strong likelihood of a rate hike at the September gathering.

However, Yokoo noted that active yen buying was expected to stay limited given the presence of both Himino and Warsh. Money markets currently foresee an 87% probability of a rate increase by the Bank of Japan next month, as indicated by data from broker Totan Tanshi. The Canadian dollar remained stable against the US dollar at C$1.388 per dollar.

Meanwhile, the US dollar reached US$1.1655 against the euro and US$1.3592 against the British pound. The Australian dollar appreciated by 0.18% to US$0.7181 versus the greenback, while New Zealand's kiwi gained 0.1% to US$0.5948. In the cryptocurrency market, Bitcoin saw a 0.55% rise to US$78,874.60, and Ether increased by 1.07% to US$2,498.35.