easing market fears of a higher reading while maintaining strong odds of a Federal Reserve rate hike next week. However, gains were limited as traders remained cautious regarding risk assets amidst escalating military tensions between the U.S. and Iran.

The world's largest cryptocurrency rose 1.9% to $78,914.6 by 5:09 PM, though it was still on track to lose nearly 2% for the week, snapping a three-week winning streak.

Broader cryptocurrency prices also saw slight gains.

U.S. August inflation matches forecasts, boosting odds of Fed rate hike

The U.S. Consumer Price Index (CPI) rose faster than expected in August, with the core inflation measure also accelerating slightly, reinforcing expectations that the Federal Reserve will raise interest rates next week.

The CPI rose 0.4% compared to July, matching forecasts and accelerating from the 0.1% pace seen the previous month. Year-over-year, prices rose 3.4%, matching both economists' expectations and the July figure.

Gasoline prices were the primary driver of the increase, jumping 3.9% and accounting for more than a third of the overall rise, according to Bureau of Labor Statistics data. The broader energy index rose 2.1%. This uptick was anticipated after average gasoline prices climbed to $4.192 per gallon in August from $4.064 in July, according to the Energy Information Administration. The core consumer price index, which excludes food and energy costs, rose 0.3% for the month, exceeding forecasts that it would match July’s 0.2% increase. On an annual basis, core prices eased to 2.4%—as expected—down from 2.5% in July.

A separate metric closely watched by the Federal Reserve—"super-core" inflation, which covers services excluding energy and housing—rose 0.5% month-over-month and 3% year-over-year.

With policymakers set to meet next week and signaling that inflation will be a central issue, markets have ramped up expectations for a rate hike. Fed Chair Kevin Warsh warned that the central bank would have to "do some work" if inflation failed to show clearer signs of a sustained return to the Fed's 2% target.

Following the report's release, traders assigned an 86% probability to a quarter-point rate hike this month—up from roughly 70% previously—according to CME Group’s FedWatch tool.

Meanwhile, escalating military tensions between the U.S. and Iran remained in focus. This week saw some of the worst attacks on shipping since the conflict began in late February. Additionally, a new front in the conflict—between Yemen’s Houthis and Saudi Arabia—has heightened concerns regarding oil supply disruptions.

Oil prices surged more than 11% this week, though they pared some of those gains after the *Financial Times* reported that Iran and Oman are planning to meet with Gulf nations next week to discuss a plan to reopen the Strait of Hormuz. Nevertheless, rising oil prices have heightened concerns about higher energy-driven inflation, which in turn could prompt further interest rate hikes by major central banks. Both the Federal Reserve and the Bank of Japan are scheduled to hold meetings next week, with markets bracing for rate increases from both institutions.

Expectations of a Fed rate hike have already been reinforced by strong U.S. Producer Price Index (PPI) data released this week.