Dollar holds modest gains after CPI data

The dollar index held onto slight gains on Wednesday, after U.S. economic data showed inflation picked up in August, although underlying inflation pressures rose modestly and could give the Federal Reserve cushion to keep interest rates on hold at its meeting next week.

The consumer price index increased by 0.6% last month, the largest gain since June 2022, the Labor Department said on Wednesday amid a jump in gasoline prices. Excluding the volatile food and energy components, the CPI increased 0.3% as prices for used cars and trucks declined.

“The move higher in headline inflation is a head-fake since it was mostly driven by a huge 10.5% jump in energy commodity prices,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

“The head-fake can still be a headache for the Fed as they have to explain why inflation is trending lower despite what people are seeing at the pump. Shelter inflation is continuing its slide towards something less ridiculous.”

The dollar index , which tracks the currency against a basket of rival currencies, was modestly higher but off earlier highs with a gain of 0.03% to 104.62.

The Fed is scheduled to make its next policy announcement at the conclusion of its Sept. 19-20 meeting.

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