The release of US Producer Price Index (PPI) data on Thursday showed annual producer inflation accelerating to 5.4% in August from 4.8% in July, surpassing market consensus and reinforcing expectations of tighter monetary policy from the Federal Reserve (Fed) [1][2][3]. The core PPI also rose to 4.6% year-on-year from 4.3% previously [3]. This data prompted markets to price in a near 70% chance of a 25-basis-point Fed rate hike at the upcoming FOMC meeting, up from below 60% last week, according to the CME FedWatch Tool [1][2][3]. The US Consumer Price Index (CPI) report, due Friday, is expected to show headline inflation rising 0.4% month-on-month in August, up from 0.1% in July, with the annual rate forecast to hold steady at 3.4%. Core CPI is projected to rise 0.2% month-on-month, with annual core inflation expected to slow to 2.4% from 2.5% [1][2][3].
The anticipation of US inflation data and Fed rate hikes has driven notable market moves. The Australian Dollar (AUD) climbed 0.17% against the US Dollar, trading around 0.7170, supported by growing expectations of further interest rate hikes by the Reserve Bank of Australia (RBA). RBA officials, including Assistant Governor Sarah Hunter and Deputy Governor Andrew Hauser, signaled readiness to raise rates if inflation persists, with markets now seeing a 72% chance of the RBA raising its Official Cash Rate to 4.6% at its next meeting, up from 54% at the start of the month [1]. Technical analysis shows AUD/USD attempting to stabilize above a descending channel, with resistance at 0.7176 and modest upside momentum [1].
Gold (XAU/USD) held firm around $4,343 after recovering from an intraday low near $4,300, supported by a pullback in US Treasury yields and oil prices ahead of the CPI report [2]. Gold fell nearly 2% on Thursday as rising oil prices fueled inflation concerns and pressured the Fed to raise rates. The benchmark 10-year US Treasury yield traded around 4.93%, after touching 4.97%, its highest since October 2023. West Texas Intermediate (WTI) oil traded near $96, down 4.6% on the day but still on track for a second weekly gain [2]. TD Securities noted that gold has held support despite renewed energy upside and increased Fed hike probabilities, suggesting strong data and a hawkish Fed may only lead to modest near-term selling, with broader constructive support from central bank buying and ETF accumulation [2].
The Swiss Franc (USD/CHF) extended losses for the sixth consecutive day, nearing one-and-a-half-month lows at the mid-0.8100s, as US data boosted Fed rate hike bets and widened monetary policy divergence with the Swiss National Bank (SNB) [3]. The USD/CHF pair rallied nearly 0.7% in the last two days. ING strategist Francesco Pesole observed the Dollar is re-establishing a positive correlation with long-end yields, linked to smaller-than-expected Treasury buybacks. Pesole sees USD risks skewed to the upside, with oil as a deciding factor, but notes a softer CPI print may not be enough to push September hike pricing below 50% [3]. Despite strong Swiss retail consumption, inflation, and GDP growth, the SNB is expected to keep rates at 0% this year and into the next, keeping the Swiss Franc defensive [3].
CONCLUSION
US inflation data and expectations of Fed rate hikes have driven significant moves across major currencies and commodities, with the Dollar strengthening, gold holding support, and the Swiss Franc weakening. The upcoming US CPI report is seen as a pivotal event that could further influence rate hike probabilities and market direction. Investors remain focused on inflation trends and central bank signals, with market sentiment leaning cautiously positive for the Dollar and neutral to slightly negative for gold and the Swiss Franc.