On Thursday, the U.S. dollar index soared to a six-month peak, driven by new economic data that showed wholesale inflation surging beyond expectations in August.
The DXY, a measure of the dollar's strength against a basket of major currencies, climbed 0.64 percent to 105.41. It narrowly missed the earlier high of 105.43, the highest since March 9. This marked its most significant one-day percentage gain in more than a week.
This surge came after the U.S. Bureau of Labor Statistics unveiled the latest Producer Price Index (PPI) figures. The PPI surged by 0.7 percent on a monthly basis, surpassing July's reading of 0.4 percent. On an annual basis, the index surged to 1.6 percent, up from 0.8 percent in July and surpassing the anticipated 1.2 percent.
The annual core PPI stood at 2.2 percent, aligned with earlier estimates and fell short of the 2.4 percent recorded the previous month.
August witnessed a 0.6 percent increase in U.S. retail sales, exceeding the expected 0.2 percent rise. This boost was attributed to higher gasoline prices. Concurrently, weekly initial jobless claims reached 220,000, slightly below the forecasted 225,000.
Rising gasoline prices also factored into the latest inflation statistics, as the PPI for final demand rose by 0.7 percent last month, outpacing the estimated 0.4 percent.
Euro weakens on ECB's record rate hike
Following the European Central Bank's (ECB) decision to raise its key interest rate to a record high of four percent, the euro weakened against the dollar. It dipped by 0.89 percent to $1.0635, reaching its lowest point since March 17 and experiencing its most substantial one-day percentage drop since July 27.
However, the ECB suggested this might be the final rate hike, ending a year-long battle against inflation as the eurozone's economy struggled.
"(ECB President Christine) Lagarde is hinting that this could be the last hike because she's saying if we keep rates here for a certain period of time, this will do the job sort of thing," said Erik Bregar, director of F.X. & precious metals risk management at Silver Gold Bull.
"And then I think every data point this morning out of the U.S. was better than expected - jobless claims, retail sales, headline PPI - so it's kind of like a double boost for the dollar here."
Despite robust U.S. economic data, expectations for the Federal Reserve's actions remained mostly unchanged. According to CME's FedWatch Tool, the likelihood of the central bank maintaining interest rates at its September 19-20 policy meeting stood at 97 percent, a slight increase from 96 percent on Wednesday.
The anticipation of a 25 basis point rate hike at the November meeting dipped to 35.3 percent, down from 41 percent the day before.
Sterling, yuan decline
On the other hand, sterling traded at $1.2418, marking a 0.68 percent decline on the day. Earlier, the currency fell to a three-month low at $1.2400. This depreciation marked the most substantial one-day percentage drop since August 24.
Meanwhile, the dollar showed minimal movement against the yen, edging down by just 0.01 percent to 147.44.
China's offshore yuan also experienced a decline on Thursday following the announcement from the People's Bank of China that it would reduce banks' reserve requirement ratio by 25 basis points.
The dollar reached 7.2969 against the offshore yuan before settling at 7.2907, marking a 0.27 percent increase for the day.