Dollar firms on hot US PPI, yen halts rally as oil tops $100

The dollar gained momentum following higher-than-expected US inflation data, while the yen's recent rally paused and oil prices climbed above $100.

Inflation and central bank actions

• The dollar found support after US August producer prices surged +5.4% year-over-year, exceeding the +5.3% forecast and fueling expectations of further Fed tightening. Global bond yields also rose in response to the hot US producer price data and an ECB hike.
• Japan's wholesale inflation remained elevated, with August producer prices climbing +7.6% year-over-year against an expected +7.4%, up from +7.2% previously, reinforcing the case for a potential Bank of Japan rate hike. This contributed to the yen halting its rally seen in previous sessions.
• The euro slipped against the dollar after the European Central Bank raised its main refinancing rate to 2.65% from 2.40%, landing exactly on the forecast we carried into the session. Traders await remarks from ECB President Lagarde later today.

Currency and commodity moves

• The US dollar strengthened broadly on Fed tightening bets, with sterling paring its earlier gains against the firmer greenback.
• Brent crude pushed back above $100 a barrel as oil climbed 7% on the day. InvestingLive points to the Iran war as the reason and calls oil the main driver behind the rise in long-term bond yields. Note the benchmark: the 14-week high above $94.00 we reported yesterday was WTI, a different grade, and WTI slipped below $93.50 on profit-taking earlier in the session.
• According to FXStreet, gold (XAU/USD) remained below $4,400 as both oil prices and bond yields moved higher.
• On an intraday basis, our strength gauge ranks the Canadian dollar as the strongest major, even as headlines indicated the loonie edged lower with oil staying above $100. The New Zealand dollar was the weakest currency today, following reports of slowing manufacturing growth in August.
• Our market metrics show an MRS of 64, with the CTS holding at 76. The FSI registers 58, indicating a neutral market sentiment.

Key events today

• GBP · GDP m/m: SCHEDULED — forecast 0.0%, previous 0.3%
• USD · CPI m/m: SCHEDULED — forecast 0.4%, previous 0.1%
• USD · Core CPI m/m: SCHEDULED — forecast 0.2%, previous 0.2%
• USD · Core CPI y/y: SCHEDULED — forecast 2.4%, previous 2.5%
• USD · CPI y/y: SCHEDULED — forecast 3.4%, previous 3.4%
• USD · Prelim UoM Consumer Sentiment: SCHEDULED — forecast 51, previous 51