Dollar edges higher against Swiss franc after US inflation data

NEW YORK, Sept 11 : The dollar edged higher against the Swiss franc on Friday after closely watched U.S. inflation data showed a rise in consumer prices, reinforcing expectations that the Federal Reserve will raise interest rates next week.       

The dollar initially gained as the data boosted the likelihood of a rate hike. However, investor sentiment remained fragile as an escalating Middle East conflict pushed up oil prices, limiting the U.S. currency's advance and leaving it little changed against its peers.

Labor Department data showed that the U.S. consumer price index increased 0.4 per cent in August after edging up 0.1 per cent in July. The so-called core CPI increased 2.4 per cent year-on-year in August after rising 2.5 per cent in July. 

The dollar rose broadly against the euro and Swiss franc before giving back some of those gains immediately after the data.  

The euro was down 0.01 per cent at $1.1611 and was on track for a weekly loss. The dollar strengthened 0.22 per cent to 0.814 against the franc. It was set for its third straight weekly gain against the Swiss currency.

"The main thing we're looking at is core CPI, which seems to be accelerating," said Juan Perez, director of trading at MonexUSA.

"What that does do - which tends to help the U.S. dollar go up against all currencies - is increase the interest rate probability or odds that the Federal Reserve will raise rates at their next meeting."

Markets are now pricing in about an 86 per cent chance of a 25 basis-point hike, compared with around 72 per cent a day earlier, according to the CME's FedWatch tool.

U.S. Treasury yields remained near multi-year highs, with the 2-year yield, which typically moves in step with Fed rate expectations, up 5 basis points at 4.6 per cent.

OIL REMAINS ABOVE $100

Oil prices fell but remained above $100 a barrel, while diesel prices were at record highs, suggesting inflation was set to remain elevated and broaden out. 

Brent crude oil prices were on track to rise more than 9 per cent for the week after Iran-aligned Houthis seized control of Yemen's port city of Mocha and advanced down the Red Sea coast to strategic islands.

Brent crude futures were down 2.2 per cent at $105.12 a barrel.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.04 per cent to 99.04. It was set to drop 0.16 per cent on the week — its second consecutive weekly drop.

YEN GAINS

The yen was on track for a second consecutive weekly gain against the U.S. dollar and was last up 0.51 per cent at 153.58 per dollar.

The Bank of Japan is expected to raise interest rates next week and could signal a faster pace of future tightening if rising price pressures increase the risk of inflation overshooting its target, four sources familiar with its thinking told Reuters.

Japan's currency strengthened further after data released on Friday showed Japanese wholesale inflation remained elevated in August, reinforcing the case for a rate hike this month.