The US Dollar (USD) has gained ground against several major currencies, including the Indonesian Rupiah (IDR), Canadian Dollar (CAD), Japanese Yen (JPY), and Euro (EUR), as financial markets price in a high probability of a Federal Reserve (Fed) interest rate hike following hotter-than-expected US inflation data released last week. The USD/IDR pair traded around 17,700, marking its third consecutive day of gains, supported by aggressive Fed rate-hike bets and soaring oil prices, which have weighed on Indonesia’s fiscal position as a net oil importer. The CME FedWatch tool indicates an 87% probability of a quarter-point rate hike at the Fed's September meeting, up from 59% a week ago [1]. Similarly, USD/CAD edged higher to 1.3875, with markets pricing in nearly 86% odds of a Fed rate hike this week and another move later in the year [2]. The US CPI rose 0.4% MoM in August, with a 12-month increase of 3.4%, while the core CPI increased 0.3% MoM, beating forecasts [1][2]. These figures have reinforced expectations for a Fed rate hike and supported the Greenback across markets.
The Japanese Yen (JPY) has weakened against the USD, with USD/JPY up 0.44% to near 154.20. The pair recovered after a weak Friday, bolstered by hawkish Fed bets and comments from US President Donald Trump, who stated that the US "should be paying the lowest interest rate in the world" regardless of Fed data, though he did not confirm whether rates would be raised this week [3]. The US Dollar Index (DXY) traded 0.35% higher to near 99.43 [3]. Investors are also awaiting the Bank of Japan’s (BoJ) policy decision on Friday, where an interest rate hike is expected [3].
Precious metals have faced headwinds due to the stronger USD and elevated oil prices. Silver (XAG/USD) showed minor losses, trading at $63.90, with a bearish near-term bias and price action hovering above key support at $63.00. The core CPI reading, which rose at its fastest pace in four months, has cemented hopes for a Fed rate hike of 25 basis points at Wednesday’s meeting [4]. Brent Oil prices surged above $103.00, with the six-month high of $106.40 in sight, following disruptions in Saudi Arabian oil pipelines and escalating tensions in the Middle East [1][4]. Gold rebounded after the US CPI release as 10-year US yields and oil prices eased, reducing inflation pressure on bullion. OCBC maintains a constructive medium-term view on gold, with FOMC guidance seen as crucial for extending the recovery [5].
The Euro (EUR) slipped to 1.1568 against the USD before rebounding to close near 1.1598, with downside momentum still limited. UOB analysts expect the EUR to test major support at 1.1565, but a clear break below this level is seen as unlikely. Resistance is noted at 1.1605 and 1.1620. On a 1–3 week horizon, a close below 1.1585 would raise odds of 1.1565 giving way, while a breach of 1.1635 would indicate continued range trading [6].
Analysts at HSBC note that recent data releases have shifted the global monetary policy narrative away from the US, with US data disappointing since early July and firmer data elsewhere prompting a dovish repricing of Fed expectations and a more hawkish stance for other central banks [1]. Scotiabank analysts highlight that stable US–Canada front-end rate differentials are providing near-term support to the CAD, limiting immediate downside despite heightened scrutiny of Fed policy [2].
CONCLUSION
The US Dollar has strengthened broadly across major currencies as markets anticipate a Fed rate hike following robust US inflation data and rising oil prices. Precious metals and commodity-linked currencies have faced headwinds, while technical and analyst views suggest continued volatility ahead of key central bank meetings. The upcoming Fed decision and ongoing geopolitical tensions are expected to remain pivotal for market direction.