Dollar Firms as Oil Spike, Hot Data Fuel Fed Hike Bets Before CPI

The Dollar Index sits at 98.7010, up 0.21% in a session still roughly three hours from the New York close. The move rides a broad yield-up, risk-off mix: the 10-year Treasury yield is up 9.7bp to 4.934%, the 5-year up 12.3bp to 4.737%, the 30-year up 5.5bp to 5.341%, and the 3-month up 3.8bp to 3.843%. Equities are lower (S&P 500 -0.59%, Dow -0.74%, Nasdaq -0.52%) while the VIX has jumped 6.50% to 17.53. Oil is the standout mover — WTI +5.47% to $101.96, Brent +6.04% to $107.32 — with headlines tying the move to escalating US-Iran tensions, alongside sharp declines in silver (-4.56%) and platinum (-5.23%).

The live policy question, per this week's headlines, is a possible Fed hike rather than a cut. CNBC reports 'the likelihood of a Fed interest rate hike next week just got a lot higher,' and Reuters says traders are betting the Fed may lean toward a hike as it eyes inflation data. Desk notes put CME FedWatch odds around 60% for a 25bp September hike from the current 3.50%-3.75% range, after Thursday's hotter-than-expected US PPI (annual +5.4% vs 5.3% expected) revived those bets and lifted yields broadly. Today's US CPI — forecast 0.4% m/m headline (previous 0.1%), 3.4% y/y (previous 3.4%), core 0.2% m/m (previous 0.2%) and core 2.4% y/y (previous 2.5%) — is described as the last major inflation read before the Fed's September 15-16 meeting.

EUR/USD trades at 1.1619, down 0.12%. The ECB delivered a 25bp hike Thursday, taking the deposit rate to 2.50%, with President Christine Lagarde calling the move a 'no brainer'; the pair has struggled to hold Thursday's gains as broader dollar strength offsets the hike. GBP/USD is at 1.3521, down 0.19%; a hawkish Bank of England Treasury Committee testimony that had lifted the pair faded after Thursday's hot US PPI revived Fed hike bets, with today's UK GDP (forecast 0.0% m/m, previous 0.3%) the next domestic data point. USD/JPY is at 154.25, up 0.46%, even as the yen has held near its strongest level in roughly seven months on hawkish Bank of Japan hike bets. USD/CAD sits at 1.3823, up 0.13%; oil's sharp rise would normally support the Canadian dollar, but firmer US yields and dollar strength are offsetting that, against the Bank of Canada's September 2 hold at 2.25% and an intensified US-Canada tariff dispute.

USD/JPY has bounced to 154.25, up 0.46% in a session still open, about three hours before the New York close — a reversal from Thursday's completed session, when the pair was little changed near 153.4-153.5, down about 0.11% and holding close to its strongest level for the yen in roughly seven months. The dominant driver remains hawkish Bank of Japan repricing: a Reuters poll on Thursday showed 66 of 68 economists expect a 25bp hike to 1.25% (from 1.00%) at the September 17-18 BoJ meeting, up sharply from a prior poll. Dollar downside has been cushioned by rising Fed hike bets and US-Iran tensions. Desk notes describe verbal intervention warnings from Japanese officials as still live into September. Today's US CPI print is the next major input before next week's BoJ decision and Governor Kazuo Ueda's press conference.

UK data dominates the European morning: GDP m/m (forecast 0.0%, previous 0.3%), Construction Output m/m (forecast 0.1%, previous -0.1%), Goods Trade Balance (forecast -22.6B, previous -23.0B), Index of Services 3m/3m (forecast 0.5%, previous 0.5%), Industrial Production m/m (forecast -0.2%, previous -0.2%) and Manufacturing Production m/m (forecast 0.2%, previous -0.5%), all due 16:00, followed by Consumer Inflation Expectations (previous 4.0%) at 18:30. Switzerland releases SECO Consumer Climate (forecast -33, previous -35) at 17:00, with SNB Chairman Schlegel speaking at 19:15. Italy's quarterly unemployment rate (forecast 5.4%, previous 5.3%) lands at 18:00. The main event is US CPI at 22:30: headline m/m forecast 0.4% (previous 0.1%), y/y forecast 3.4% (previous 3.4%), core m/m forecast 0.2% (previous 0.2%), core y/y forecast 2.4% (previous 2.5%).