August core inflation clocked in at 0.3% versus a 0.2% consensus, and that modest upside surprise initially put a little wind at the dollar's back on Friday. The Bloomberg Dollar Spot Index touched a one week high after rising as much as 0.2%.
That pop did not last. As crude pulled back, support for the greenback faded and the index flipped to a 0.1% loss by mid morning New York time. Month to date, the gauge is down 0.5%.
It's worth noting that a day earlier the dollar advanced as firm producer prices and a spike in oil shored up bets the Fed might still raise borrowing costs this year. Oil then gave back part of that increase on Friday, sapping support for the move.
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Traders leaned a bit more toward a Fed hike next week after the CPI print, but positioning has been moving the other way for weeks. Asset managers, hedge funds and other market participants have been trimming bullish dollar exposure for five straight weeks, leaving net long positions at just below $27 billion for the week through Sept. 1. For comparison, by the end of July, the figure was almost $50 billion, marking the most crowded bullish positioning since 2014. Data reflect net futures positions reported by the CFTC through Sept. 1, 2026.
Options pricing is also less upbeat on the greenback. The premium to guard against more dollar upside versus downside over the next six months has slipped, signaling a softer near term outlook.
The Japanese yen outperformed its major peers on Friday, rising as much as 0.8% to 153.24. It is on track for a second consecutive weekly gain, the longest stretch since May. Earlier this week, US Treasury Secretary Scott Bessent challenged traders to test his resolve to back Japan's currency, and Japanese policymakers have been sounding more hawkish. The Bank of Japan meets next week after the Fed's decision.
"The report was in the range of being supportive for a Fed hike but not so hot to cause more alarming fears of inflation getting out of control," said Nathan Thooft, senior portfolio manager with Manulife Investment Management. "Weaker oil also supportive of the moves in the dollar."
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