Dollar Holds Gains Ahead of US Inflation Data

The US dollar index traded flat at 99.09 on Friday. This level marks the currency's highest point in the past week. The market waited for US consumer price data to be released at 12:30 GMT. Traders see this data as a final signal before the Federal Reserve meets next week.

Oil prices surged earlier in the week due to conflict in the Middle East. Brent crude rose 10% for the week, its biggest gain since July. Prices dipped on Friday to $105 a barrel after touching $110 on Thursday. These energy costs directly impact inflation expectations.

Bond Yields Approach Critical Threshold

A global bond selloff accelerated on Thursday. The 10-year US Treasury yield moved near the 5% level. Investors expressed concern over high government debt levels. According to GN markets/fx (en-US), stress in bond markets is bleeding into risk assets. This dynamic favors a defensive rotation into the dollar.

Fed funds futures price a 70% probability of a 25-basis-point hike on September 16. This is up from 60% a week earlier. The August CPI report is expected to show accelerated consumer prices. Rising gasoline costs are the primary driver of this inflationary pressure.

Other Currencies React to Data

The euro fell slightly against the dollar to $1.161. The pound rose to $1.352 after British growth beat expectations in July. The US dollar declined 0.1% against the Japanese yen to 154.22. The yen gained strength after data showed elevated wholesale inflation in August. This data supports the case for a rate hike in Japan.

Geopolitical Risks Shape Market Sentiment

Iran-aligned Houthis seized control of Yemen's port city of Mocha. They advanced down the Red Sea coast to strategic islands. These developments skew the balance of risks toward higher oil prices. Currency strategists note that this combination favors the US dollar. The market remains focused on the interplay between energy costs and central bank policy.