Dollar Emerges as Biggest Winner Following CPI Release Last Week

Reactions from money markets suggest that the higher-than-expected consumer inflation data from the US last week have cemented nothing less than a 75 basis point rate hike by the US Federal Reserve in its next meeting. The US dollar (USD) ended the week as the strongest currency, as it was propped by intense risk flight by investors. Despite this, the dollar could only rally above the previous week’s high against the Canadian dollar (CAD) and New Zealand dollar (NZD), indicating that the momentum was not completely convincing.

The Japanese yen (JPY) recovered significantly on intervention threats by Japan, helping it close as the second strongest currency, followed by the euro (EUR).

Meanwhile, commodity-tied currencies closed the week as the worst performers due to the heightened risk-off sentiment in the market. The CAD, Australian Dollar (AUD), and NZD all stumbled to notable lows. However, the weakness seen in the British pound (GBP) was the most talked about, as it fell to multi-decade lows against the dollar and the Swiss franc (CHF).

Dollar to Record Additional Gains Amid Higher Fed Rate Hike Expectations

As mentioned earlier, capital markets have a 100% expectation of a 75 bps rate hike by the Fed in the September 21 meeting, following its CPI reading. At the same time, the markets have priced in an 18% chance of a 100 bps rate hike.

In other news, major US stock indexes closed lower last week, erasing all of the gains recorded in the previous week. The S&P 500 (SPX) recorded a 4.77% slump last week, tapping the 3837 mark, a level not seen since mid-July. The Nasdaq Composite (IXIC) fared worse, losing a jarring 5.48%, while Dow Jones Industrial Average (US30) fell by 3.75% on the week.