Market News

The dollar edged higher against the Swiss franc on Friday after closely watched U.S. inflation data showed a rise in consumer prices, reinforcing expectations that the Federal Reserve will raise interest rates next week.

The dollar initially gained as the data boosted the likelihood of a rate hike. However, investor sentiment remained fragile as an escalating Middle East conflict pushed up oil prices, limiting the U.S. currency's advance and leaving it little changed against its peers.

U.S. Inflation Rises

U.S. Labor Department data showed that the Consumer Price Index (CPI) increased 0.4% in August, following a 0.1% rise in July.

Core CPI, which excludes food and energy prices, increased 2.4% year-on-year in August, compared with a 2.5% increase in July.

The dollar initially rose broadly against the euro and Swiss franc following the release before giving back some of its gains.

Dollar and Swiss Franc

The euro was down 0.01% at $1.1611, while the dollar strengthened 0.22% to 0.814 Swiss francs.

The dollar was on course for a third consecutive weekly gain against the Swiss currency.

Juan Perez, director of trading at MonexUSA, said the key issue for markets was the acceleration in core inflation.

Higher inflation increases the probability that the Federal Reserve will raise interest rates, which generally supports the dollar by making U.S. assets more attractive.

Fed Rate-Hike Expectations Strengthen

Financial markets increased their expectations for a Federal Reserve rate increase following the inflation report.

Markets were pricing in approximately an 86% probability of a 25-basis-point rate hike, up from around 72% a day earlier, according to CME's FedWatch tool.

U.S. Treasury yields also remained near multi-year highs. The two-year Treasury yield, which is particularly sensitive to expectations for Federal Reserve policy, rose 5 basis points to 4.6%.