The dollar index (DXY) increased by 0.20% on Wednesday, recovering from early losses linked to a dovish July US Consumer Price Index (CPI) report. The July CPI rose 3.4% year-on-year, down from June’s 3.5%, while core CPI decreased to 2.5% from 2.6%. Demand for higher Treasury yields contributed to the dollar’s strength, with Wednesday’s 10-year T-note auction yielding its highest since 2007.
As of now, the market estimates a 40% probability of a 25 basis point rate hike during the Federal Open Market Committee (FOMC) meeting on September 15-16, a drop from 51% on Tuesday. In contrast, the European Central Bank anticipates an 88% chance of a similar rate hike at its next meeting on September 10. Additionally, the Japanese yen faced downward pressure as dollar strength increased, despite potential interventions from the Bank of Japan, with a 63% chance of a 25 basis point rate hike by September 18.
Gold prices climbed 0.59% to close at $26.10 higher, supported by the dovish CPI report, although they faced pressure from a stronger dollar and recent fund liquidations. Notably, China’s PBOC reserves rose by 640,000 ounces to 76.08 million troy ounces, marking the twenty-first consecutive month of increases.
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