August’s inflation surprise in the United States led to higher bets on further interest rate rises in the US. The market is now expecting the Federal Reserve to raise rates for the third straight time by 0.75 percentage point.
US dollar strengthens
The US dollar started to strengthen after the announcement of a surprising month-on-month rise in the US price level. The dollar index strengthened by 0.97 percent, while the dollar gained 0.85 percent against the euro. The Japanese yen, on the other hand, lost 0.84 percent against the dollar. The Mexican peso even fell by less than a percent.
In contrast, Wall Street’s major stock indices were down. The tech Nasdaq fell the most, by almost four percent. The S&P 500 index also wrote off more than three per cent and the Dow Jones loss remained below three per cent.
The Fed may raise interest rates again
The contradictory development of the dollar and US equities occurred as a result of the surprising increase in the price level in August. While the market had expected prices in the US to fall month-on-month, they rose by 0.1 per cent. The market has thus increased bets that the Federal Reserve will raise interest rates again at its monetary policy meeting next week, and again by 0.75 percentage points.
