The dollar index (DXY00) is up by +0.20% today. The dollar is moving higher today amid the +3% surge in WTI crude oil to a 3.5-month high, which is boosting inflation expectations and could persuade the Fed to raise interest rates. Also, today’s jump in T-note yields has strengthened the dollar’s interest rate differentials. In addition, falling stocks today are boosting liquidity demand for the dollar.
Today’s US economic news also supported the dollar, with stable weekly jobless claims and stronger-than-expected Aug PPI. The dollar fell back from its best level after US Aug existing home sales fell to a 14-month low.
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US weekly initial unemployment claims fell -1,000 to 206,000, close to expectations of 205,000 and signaling a stable labor market.
US Aug PPI final demand rose +5.4% y/y, stronger than expectations of +5.3% y/y. Aug PPI ex-food and energy rose +4.6% y/y, right on expectations.
US Aug existing home sales fell -2.0% m/m to a 14-month low of 3.98 million, right on expectations.
The markets are discounting a 68% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) is down by -0.14% today. The euro is under pressure from a stronger dollar. Also, today’s +3% surge in crude oil prices to a 3.5-month high is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
Euro losses are limited after the ECB raised interest rates by 25 bp as expected. The ECB also raised its 2026 Eurozone GDP forecast, a positive factor for the euro. In addition, today’s surge in the 10-year German Bund yields to a 15-year high of 3.495% has strengthened the euro’s interest rate differentials.
The ECB, as expected, raised the deposit facility rate by +25 bp to 2.50% and said inflation will stay above 2% for an “extended period.”
The ECB raised its 2026 Eurozone GDP forecast to +0.9% from a prior forecast of +0.8%, and kept its 2026 inflation ex-food and energy forecast unchanged at +2.5%.
The markets are discounting a 79% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is up by +0.26% today. The yen is falling after the 10-year T-note yield jumped to a 2.75-year high. Also, today’s +3% surge in crude oil prices to a 3.5-month high is negative for the Japanese economy and yen, as Japan imports more than 90% of its energy.
