The greenback halted a six-day decline and was on course for its biggest rally in five weeks after a firm inflation reading spurred traders to lift the probability of another Federal Reserve interest-rate hike this year.
Bloomberg’s gauge of the US currency climbing about 0.7% as of around 3 p.m. in New York, the most since Sept. 5, buoyed in part by surging Treasury yields. The greenback was higher versus all its Group of 10 peers, with the biggest gains coming against the Australian and New Zealand dollars.
“King dollar is ready to give up the crown” only when traders are confident that the Fed is done raising rates, Edward Moya, senior market Analyst at FX brokerage Oanda, wrote in an email after the release of the US consumer price index.
On Thursday, swap contracts linked to future Fed decisions pushed the odds of another quarter-point hike to about 50%, from near 30% the day before. Treasury yields extended their climb after a 30-year auction drew weak demand.
The Bloomberg dollar index traded less than 1% below its year-to-date high, reached Oct. 4.
The September CPI reading, particularly gains in shelter and core services ex-shelter prices, should keep the dollar well-supported, said Patrick Locke, a New York-based currency strategist at JPMorgan Chase & Co.
“The market has managed to de-price a bit more cuts out of next year, which along with a still-strong labor market underpins the dollar since the CPI release,” he wrote in a client note.
