A stronger-than-expected US Producer Price Index (PPI) report for August, with headline inflation rising 5.4% year-over-year versus 5.3% estimates and 4.8% in July, has triggered a broad rally in the US Dollar and heightened expectations for a Federal Reserve rate hike at the upcoming policy meeting. The CME FedWatch tool now shows a 72.4% probability of a rate increase, up from 61.2% before the data release, as US Treasury yields hit record highs at 4.98%—the highest since November 2023 [2][3].
This surge in the US Dollar has impacted several major currency pairs. USD/CAD extended its gains for the third consecutive day, trading around 1.3840–1.3850, after breaking above the nine-day EMA. Despite this, the pair remains within a descending channel pattern, signaling a persistent bearish bias, with resistance at 1.3890 and 1.3913, and support at 1.3828, 1.3570, and 1.3481. Strategists at Scotiabank note that strengthening crude and commodities provide some lift to the Canadian Dollar, but this is not fully reflected in the CAD currently. Market spreads remain steady, though volatility may increase as markets react to US inflation data [1].
The Indian Rupee (INR) has declined for the fourth consecutive day, with USD/INR rising to near 95.80. The US Dollar Index (DXY) trades firmly near 99.20. Economists at TD Securities project US core CPI to rise 2.3% year-over-year in August, with headline inflation likely unchanged at 3.4%. Risks are skewed to the upside if assumed price declines in tariff-exposed goods do not materialize. On the domestic front, India's CPI inflation is expected to rise to 4.8% in August, up from 4.4% in July, marking the third consecutive month above the RBI's 4.0% target [2].
The Indonesian Rupiah (IDR) weakened against the US Dollar, with USD/IDR trading around 17,660. Indonesia faces fiscal pressures from elevated oil prices and persistent domestic inflation, which accelerated to 3.19% in August. Analysts at MUFG warn that Asia FX resilience may not continue if US yields remain elevated. Technical analysis shows USD/IDR retains a bearish bias, with resistance at 17,664 and 17,802, and the 14-day RSI at 40 indicating ongoing downside pressure [3].
The Euro (EUR) also struggled against the US Dollar, with EUR/USD hovering near 1.1600. The pair remains under selling pressure as traders await the US CPI report. The US PPI data and geopolitical tensions, including US-Iran developments and disruptions in the Red Sea, have lifted oil prices and supported the Greenback. However, the downside for EUR/USD is cushioned by the European Central Bank's hawkish outlook, as the ECB raised rates for the second time this year and warned of prolonged price pressures, increasing bets on further tightening in October. Technical analysis shows EUR/USD holding above the 200-period EMA at 1.1585, with resistance at 1.1627 and support at 1.1575, 1.1534, and 1.1492 [4].
CONCLUSION
The US Dollar's strength, driven by robust PPI data and heightened Fed rate hike expectations, has led to declines in major global currencies including the CAD, INR, IDR, and EUR. Elevated US Treasury yields and geopolitical risks are further supporting the Greenback. Market participants are closely watching upcoming US CPI data and central bank actions for further direction, with volatility expected to increase in the near term.