US FX WRAP: Dollar gains on hot US CPI

USD strength extended on a hot US CPI report that has brought October Fed rate hike expectations back to a coin flip. The report came in hotter-than-expected on headline and core, with elevated energy prices driving the 0.6% M/M headline reading. Additionally, a broad-based sell-off in equities, led by Tech, with Financials also having a rocky start to Q3 earnings. The CPI report catalysed the move. However yields reversed the rise on the report, trading lower on the belly and long-end at settlement, dragging USD's performance down with it. DXY finished firmly at 102.55, though notably off the fresh YTD 102.945 highs.

JPY eked into marginal strength against the buck, supported by the turnaround in the US yields. USD/JPY hit highs of 159.95 before completely paring back to around 158.17.

AUD was initially firmer on strong Chinese trade later, yet later succumbed to the broad risk-on trade. GBP and EUR were the worst G10 performers. On French fiscal policy risk, ECB's Simkus doesn't see a role for ECB intervention in France at present and attributes the rise in French yields to economic developments. Meanwhile, he doesn't see evident second-round effects yet. EUR/USD made lows of 1.1113, later partially recovering to 1.1155; EUR/GBP made new YTD lows of 0.8427, before managing to pare losses and rise to 0.8458.