Forex Today: US Dollar strengthens on hotter US inflation, rising Fed hike expectations
Here is what you need to know on Tuesday, September 15:
The US Dollar (USD) gathers strength to a near two-week high around 99.60 in early European trading on Tuesday as surging oil prices pushed Treasury yields to fresh peaks since 2007. US Consumer Price Index (CPI) accelerated in August. Hotter CPI data followed strong readings in several components of the Producer Price Index (PPI) released on Thursday, reinforcing US rate hike expectations.
Traders are pricing in a more than 92% chance that the Federal Reserve (Fed) will raise rates by 25 basis points (bps) in its September meeting on Wednesday, according to the CME FedWatch tool.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.17% | 0.21% | 0.33% | 0.05% | 0.27% | 0.36% | 0.04% | |
| EUR | -0.17% | 0.05% | 0.14% | -0.12% | 0.10% | 0.18% | -0.13% | |
| GBP | -0.21% | -0.05% | 0.08% | -0.18% | 0.05% | 0.12% | -0.18% | |
| JPY | -0.33% | -0.14% | -0.08% | -0.27% | -0.05% | 0.02% | -0.28% | |
| CAD | -0.05% | 0.12% | 0.18% | 0.27% | 0.22% | 0.30% | -0.01% | |
| AUD | -0.27% | -0.10% | -0.05% | 0.05% | -0.22% | 0.08% | -0.24% | |
| NZD | -0.36% | -0.18% | -0.12% | -0.02% | -0.30% | -0.08% | -0.30% | |
| CHF | -0.04% | 0.13% | 0.18% | 0.28% | 0.01% | 0.24% | 0.30% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
West Texas Intermediate (WTI), the US crude oil benchmark, rose more than 1% on Tuesday as concerns over global supplies intensified after attacks disrupted Saudi Arabia’s East-West pipeline and planned talks between Gulf Arab states and Iran were postponed.
Iran's President Masoud Pezeshkian said on Monday that Tehran’s demands for negotiation with the United States (US) are the same as our previous demands. Meanwhile, US President Donald Trump said the US is open to engaging with Iran after previously repeatedly insisting that he did not want to negotiate with the Islamic Republic.
On the Asia front, data released by the National Bureau of Statistics (NBS) on Tuesday showed that China’s Retail Sales rose 0.4% YoY in August, compared to a 0.6% growth in July. This figure came in weaker than the 0.8% expected. Industrial Production climbed 5.2% YoY in August, versus 4.5% prior, above the market consensus of 4.8%.
Fed uncertainty grows as Warsh shifts focus away from forward guidance
Analysts at Commerzbank highlight that “there is currently a high degree of uncertainty surrounding the future of the Fed's monetary policy,” noting a sharp divergence between market pricing and economist expectations. While “market participants anticipate interest rate hikes,” they point out that “economists surveyed tend to expect rate cuts in the coming year,” underscoring the lack of consensus on the policy path.
At the same time, Commerzbank flags a structural shift in the communication framework under the new Fed chair. They note that Kevin Warsh “has rejected the idea of explicit forward guidance,” and that their “analysis of meetings over the past 30 years shows that surprises in forward guidance primarily drove the US dollar.” In their view, “if Warsh weakens this channel, data releases are likely to become more important,” and the “frequent USD performance changes seen between the statement and the press conference under former Fed Chair Jay Powell are likely to become less common.”
Lagarde flags persistent inflation and longer shock, modestly hawkish tone
The FXS Speechtracker score of 6.4 versus President Lagarde’s 6.2 average signals a slightly more hawkish tilt, driven by emphasis on Euro area inflation at 3.3% and the assertion that the current shock is longer-lasting. Highlighting volatile energy markets due to Middle East conflict and stressing that the ECB must act for the entire Euro area, not individual countries, reinforces a cautious stance against premature easing.
Comments on the rise in long-term rates being linked to public finances and funding needs for technologies like artificial intelligence underscore structural pressures that can keep Euro yields elevated. Calls to simplify administrative regulations at both European and French levels point to a pro-growth supply-side agenda, but the overarching focus on above-target inflation and persistence of the shock keeps the balance of risks skewed toward a hawkish interpretation for the Euro.
EUR/USD loses ground below 1.1550 in the European morning. The major pair remains under selling pressure even as a slew of European Central Bank (ECB) policymakers warned of upside inflation risks, which have fuelled expectations of one more interest rate hike this year. Last week, the ECB raised its key policy rates by 25 bps, as expected, and warned that more hikes could follow.
GBP/USD weakens to around 1.3470, the lowest since August 7. The Bank of England (BoE) is set to keep interest rates steady on Thursday despite surging oil prices.
Financial markets are pricing in a 30% chance of a quarter-point rate hike on Thursday, according to LSEG data on Monday, up from less than 10% at the start of last week, and almost fully pricing in a November move.
USD/JPY rebounds to near 154.85 in the European morning on Tuesday. The Bank of Japan (BoJ) is expected to raise its policy interest rate to 1.25%, the highest level in about 31 years, at its September policy-setting meeting on Friday.
Gold declines below $4,300 on Tuesday. The precious metal remains on the defensive amid hotter US inflation and elevated energy prices, which have caused markets to significantly increase their expectations for tighter Fed monetary policy.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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