The dollar jumped against the yen, euro and other currencies on Tuesday after stronger-than-expected U.S. inflation data, which suggested the Federal Reserve may need to stay aggressive in raising interest rates.
The dollar index DXY, which tracks the greenback against six peers, was up 1.1% at 109.39, heading back toward last week's two-decade peak of 110.79. The index turned positive after the data release.
The euro EURUSD, pound GBPUSD and yen USDJPY all declined, with the euro last down 1% versus the greenback to $1.0016, after hitting a nearly one-month high of $1.0198 in the previous session.
According to the Labor Department report, U.S. consumer prices unexpectedly rose in August and underlying inflation picked up amid rising costs for rents and healthcare.
"The data was far stronger than expected. Particularly worrisome is the fact that core inflation came in almost double estimates," said Karl Schamotta, chief market strategist at Corpay in Toronto.
"This is going to put the idea of transitory inflation to bed for now and anchor U.S. yields and the dollar substantially higher. The key thing here is that we're now looking at near-certain odds on a 75-basis-point move next week."
Following the report, a price rise in interest-rate futures contracts reflected near-certainty that the Fed will at least deliver a 75-basis-point rate hike next week, with a small chance of an even bigger increase.
The dollar had eased in recent sessions after its strong run higher.
Against the yen, the dollar was up 0.9% at 144.095. Earlier, the Japanese currency found support from comments from officials signaling the government could take steps to counter excessive yen weakness.
The euro had been gaining in recent sessions following hawkish noises from the European Central Bank. Last week, five sources close to the matter said Europe's benchmark rate could rise to 2% or beyond to tame inflation.
Sterling was down against the dollar as well. The pound was last down 1.2% at $1.1544. Earlier in the day, it rose to a two-week high after the British jobless rate dropped to its lowest level since 1974, while wages excluding bonuses rose by 5.2%, the highest rate since the three months to August 2021.
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Currency bid prices at 9:37AM (1337 GMT)
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