Early on Wednesday in European trading, the US dollar stabilized after the previous session’s significant gains following the hotter-than-expected US inflation report.
The Dollar Index, which measures the dollar’s value against a basket of six other currencies, was essentially constant at 109.510 at 03:00 ET (07:00 GMT) after rising 1.5 per cent overnight, its largest one-day percentage rise since March 2020.

Inflation in the US exceeded expectations in August. In particular, the so-called “core CPI” increased shockingly by 0.6 per cent, exceeding expectations by two times, raising the annual core inflation rate from 5.9 per cent in July to 6 per cent. Since the 40-year peak it reached in March, that is the highest it has ever been.

This guarantees that the Federal Reserve will raise interest rates significantly again when its policymakers gather the following week. The probability of a full 1 per cent rate hike is now being considered, while markets have already priced in a high likelihood of a 75 basis point rate increase the following week.

However, USD/JPY dropped 0.8 per cent to 143.42 as the yen recovered from a 24-year low overnight following rumours in the Japanese media that the Bank of Japan checked interest rates. This raised concerns among traders that the central bank was getting ready to act to rescue the struggling currency.