The Dollar Index jumped 1.1% after the report of US inflation data in August that missed expectations, and the market is now pricing in a 75 basis point rate hike with a possibility of a 100 basis point hike.
Rallying by more than 1% to 109.39 on Tuesday, a basket for a greenback against foreign currencies, is enjoying the surge after the Labor Department announced Tuesday that the U.S. inflation data in August rose 8.3% year-on-year and 0.1% since last month. The figure came down from its peak of 9.1% in June and a 8.5% reading in July. Still, the data missed expectations from economists and analysts for a 8.1% rise in August.
Core inflation which excludes volatile oil and food prices rose 6.3% YoY from 5.9% in July and 6.1% expected. The figure rose 0.6% from the previous month, compared to 0.3% expected.
Prior to the announcement of inflation data, the market expected inflation to pass its peak while lowering the possibility of a 75bps rate hike from the Federal Reserve later this month. However, after an unexpected inflation data that missed economists’ forecast, the market is now 100% priced in for a 75bps hike, while the economic indicator pointed to a 21% probability of a full percentage point rise.