Dollar Holds Firm Near 98.80 as Fed Hike Bets Firm Into FOMC

The Dollar Index prints 98.8060, up 0.05% in Friday's completed session, with cash FX markets now closed for the weekend. That modest tick sits atop a bigger week's move: back-to-back hot US inflation prints — Thursday's PPI accelerating to 5.4% y/y (versus 5.3% expected) and Friday's CPI, with headline in line with the 0.4% m/m/3.4% y/y forecast but core hotter than forecast at 0.3% m/m versus 0.2% expected — pushed Fed rate-hike odds for the September 15-16 FOMC to roughly 88-90% (CME FedWatch tracking, Yahoo Finance), up from about two-thirds earlier in the month. That repricing has partly offset the ECB's own hawkish 25bp hike delivered September 10. Equities stayed firm regardless: the S&P 500 added 0.97%, the Nasdaq 1.18%, and the VIX dropped 12.39% to 15.63.

Treasury yields were mixed in the same session: the 10-year added 1.1bp to 4.955%, the 5-year rose 3.6bp to 4.769%, and the 3-month jumped 6.8bp to 3.913%, while the 30-year eased 1.8bp to 5.343%. The front-end move reflects the live policy question for 2026, which is whether the Fed hikes rather than cuts — the current target range is 3.50-3.75%. Market pricing now leans toward a 25bp hike to 3.75-4.00% (per CME FedWatch) at the September 15-16 FOMC under Fed Chair Kevin Warsh, a decision due Wednesday at 2:00pm ET. Yahoo Finance reported hike odds rose to 90% on the monthly jump in core prices, and AFR described bond markets as exacting 'the revenge of rational economics.'

EUR/USD trades at 1.1598 (-0.10%), having slipped to a weekly low near 1.1569 off a weekly high around 1.1650, as dollar strength partly offsets the ECB's hawkish 25bp hike to a 2.50% deposit rate delivered September 10. GBP/USD sits at 1.3523 (+0.09%), having dipped near 1.3470 on Friday's US CPI before recovering; July UK GDP grew 0.4% (versus 0.0% expected), reinforcing expectations the BoE holds at 3.75% on September 17. USD/JPY is at 153.70 (-0.50%), with the yen firmer in the latest snapshot against a backdrop of near-universal expectations for a Bank of Japan hike to 1.25% on September 18 and confirmed record Ministry of Finance intervention spending. USD/CAD trades at 1.3865 (+0.23%), a clear dollar gainer as oil retreats and the Bank of Canada's September 2 hold weighs on the loonie.

USD/CAD is today's focus pair, up 0.23% to 1.3865, extending above Friday's 1.3838-1.3850 range and well clear of an intraday low near 1.3760 earlier in the week. The move lines up with two forces in the data: Friday's US CPI, with headline matching the 0.4% m/m/3.4% y/y forecast but core hotter than forecast, reinforced a less-dovish Fed narrative; and oil, a key driver for the loonie, pulled back sharply, with WTI down 3.98% to 99.79 and Brent off 2.97% to 104.43, after Thursday's push to WTI's highest level since May. The Bank of Canada's September 2 hold at 2.25% — its seventh straight — also still weighs, with Governor Tiff Macklem flagging inflation risk from new US tariffs and elevated oil tied to the Middle East conflict. Statistics Canada's August CPI, due Monday, is the next scheduled mover ahead of Wednesday's FOMC decision.

On today's calendar: ECB President Lagarde speaks at 18:00 (medium impact), followed by the BRICS Summit at 18:15 (low impact); no other releases are scheduled for the weekend. Looking into next week, Statistics Canada publishes August CPI on Monday, September 14, followed by Canadian labour productivity data and US retail sales on Tuesday. The UK's ONS Labour Market Overview is due September 15. The Federal Reserve's rate decision lands Wednesday, September 16 at 2:00pm ET, with a press conference at 2:30pm ET. The Bank of England's MPC decision follows Thursday, September 17, and the Bank of Japan's policy decision and Japan's August national CPI are due Friday, September 18.