Dollar Firms Against Swiss Franc as US Inflation Data Lifts Rate Hike Bets to 86%
By Aboki Forex —
The dollar edged higher against the Swiss franc on Friday after closely watched United States inflation data showed a rise in consumer prices, reinforcing expectations that the Federal Reserve will raise interest rates next week. The greenback strengthened 0.22% to 0.814 Swiss francs and stayed on course for a third consecutive weekly gain against the Swiss currency.
The dollar initially rose broadly against the euro and the franc after the release, before giving back some of those gains. The euro was down 0.01% at $1.1611. Investor sentiment stayed fragile as an escalating Middle East conflict pushed oil prices up, limiting the US currency's advance and leaving it little changed against its peers.
Inflation Numbers Behind the Move
US Labor Department data showed the Consumer Price Index rose 0.4% in August, following a 0.1% rise in July. Core CPI, which strips out food and energy prices, increased 2.4% year on year in August, compared with a 2.5% increase in July.
Juan Perez, director of trading at MonexUSA, said the key issue for markets was the acceleration in core inflation. Higher inflation raises the probability that the Federal Reserve will lift interest rates, which generally supports the dollar by making US assets more attractive.
Rate Hike Odds Jump
Markets increased their expectations for a Federal Reserve rate increase after the inflation report. Traders were pricing in roughly an 86% probability of a 25 basis point hike, up from around 72% a day earlier, according to CME's FedWatch tool.
US Treasury yields also stayed near multi-year highs. The two-year Treasury yield, which is especially sensitive to expectations for Federal Reserve policy, rose 5 basis points to 4.6%.
What It Means for the Naira
A firmer dollar and higher US Treasury yields typically tighten global financial conditions and put pressure on emerging market currencies, including the naira. Nigerian businesses with dollar obligations, importers and anyone planning foreign exchange transactions should expect the greenback to stay firm in the near term, especially if the Fed follows through on the expected hike.