The Dollar Index (DXY) is one week away from reaching the historical milestone of a 10-week winning streak as the market believes the central bank will keep interest rates at a higher level for longer.
The Dollar Index, which is a basket measuring the U.S. dollars (USD) strength against a basket of six influential currencies, including the Euro and Pound, just had a 9-week winning streak last Friday. In the last 45 years, there was only one occasion that the index recorded a gain for 10 weeks straight, which was in 2014.
The index is at 105.24 level, the highest since early March this year. The index rose to a two-decade high at 114 last September when the Fed’s continuous rate hikes were at its peak.
Despite the markets being fully priced for the Federal Reserve to maintain interest rates at 5.25 – 5.50% in the meeting scheduled this Wednesday, bond yields and dollar are also rising amid hopes that the central bank will maintain the rate this high for longer as inflation data is still showing signs of not giving up.
The U.S. inflation for August posted the largest monthly increase this year as Americans faced higher energy prices that was also a driving force for other items.
The consumer price index rose 3.7% in August from a year ago, which was slightly higher than a 3.6% rise surveyed by Dow Jones. Meanwhile, a seasonally adjusted inflation rose 0.6% for the month, in line with the forecast.
However, core inflation, which excludes volatile food and energy prices, rose 0.3% MoM and 4.3% YoY, compared to a 0.2% MoM and 4.3% expected.
The main focus at the meeting this Wednesday will shift to the Fed’s outlook on the economy and hints for the November’s meeting. The market expected the first rate cut to be in June next year and about 75bps cut in total in 2024, according to CME FedWatch Tool.
