U.S. Dollar (DXY) Rallies As Traders Bet The Fed Will Raise Rates Aggressively

Key Insights

• U.S. dollar rallied as U.S. inflation exceeded analyst expectations. 
• All major currencies are under serious pressure against the U.S. dollar. 
• USD/JPY may soon test the 145 level as the BoJ remains dovish. 

U.S. Dollar Index Tests 109.50 As Inflation Exceeds Expectations

U.S. dollar rallied after the release of U.S. inflation reports, which indicated that Inflation Rate grew by 8.3% year-over-year in August. Analysts expected that Inflation Rate would decline from 8.5% in July to 8.1% in August.

The U.S. Dollar Index, which has settled near 107.80 ahead of inflation data, has quickly moved towards the 109.50 level. The FedWatch Tool indicates that there is a 18% probability of a 100 bps rate hike at the next Fed meeting. Before the reports were released, traders believed that the Fed would not consider this option.

At this point, it looks that surprising reports caused a serious short-squeeze. In the near term, traders will need to monitor the developments in U.S. government bond markets. In case Treasury yields continue to move higher, the U.S. dollar will get more support.

EUR/USD Tries To Settle Below 1.0050

EUR/USD moved below the 1.0050 level as traders reacted to shocking inflation data from the U.S.

Today, EUR/USD traders had a chance to take a look at the Euro Area ZEW Economic Sentiment Index report for September. The report indicated that Euro Area Economic Sentiment declined from -54.9 in August to -60.7 in September due to the energy crisis.

EUR/USD is currently trying to settle below the 20 EMA, which is located near 1.0035. In case this attempt is successful, EUR/USD will have a good chance to get to the test of the 1.0000 level.

 

GBP/USD Settled Below The 1.1600 Level

GBP/USD pulled back below the 1.1600 level and settled near 1.1560 as traders rushed to sell the pound after the release of U.S. inflation data.

Tomorrow, GBP/USD traders will focus on inflation data from the UK. Analysts expect that UK Inflation Rate increased from 10.1% in July to 10.2% in August. If the report exceeds analyst expectations, it may provide some support to the British pound.

Commodity-Related Currencies Are Under Pressure After U.S. Inflation Data

AUD/USD declined towards the 0.6800 level, while NZD/USD retreated towards 0.6050 as traders moved out of commodity-related currencies after the release of U.S. inflation reports. Meanwhile, USD/CAD managed to get back above the 1.3050 level.

Most likely, traders will stay focused on general dynamics of the American currency. There will be no currency-specific catalysts for AUD/USD, NZD/USD, and USD/CAD today.

Japanese Yen Is Losing Ground Against The U.S. Dollar

USD/JPY moved above the 144 level as Treasury yields tested new highs. There are no positive catalysts for the Japanese yen, and aggressive Fed may push USD/JPY above the 145 level.

The key question is whether the BoJ is ready to intervene if USD/JPY starts testing the 145 level. Without support from the BoJ, USD/JPY may gain significant upside momentum and move towards the 150 level after a successful test of the 145 level.

For a look at all of today’s economic events, check out our economic calendar.