The U.S. dollar rose to its highest level since April 9, 2025, after a hotter-than-expected inflation report and hawkish Fed comments. Markets now price a 10% chance of a 50-basis-point hike in December. The euro and the Australian dollar both lost ground.
The U.S. dollar index climbed 0.7% to 102.89 on Wednesday, its highest level since April 9, 2025. The index tracks the greenback against a basket of six major peers. Gains extended a day after a hotter-than-expected U.S. inflation report and hawkish comments from Federal Reserve officials made markets weigh a possible 50-basis-point hike next month.
Hot CPI and hawkish Fed officials lift hike odds
Tuesday's Consumer Price Index report showed headline consumer prices rising 0.4% in October, above economist expectations for a 0.3% increase. Investing.com said the surprise effectively shattered hopes that the Fed could pause its tightening campaign.
Fed Governor Christopher Waller said he would support a rate increase in December even if inflation temporarily cooled. He also argued that policymakers should consider a 50-basis-point increase if price pressures worsened. Dallas Fed President Lorie Logan said the central bank needed at least two more quarter-point rate increases to bring inflation under control.
As a result, traders repriced the Fed's year-end path. According to the CME FedWatch tool, markets now price a 91% probability of a 25-basis-point increase at the December meeting, up from 84% on Monday. The probability of a 50-basis-point rate hike has risen to 10%.
Macquarie's Thierry Wizman said the December FOMC meeting feels far away, and that enough could happen to deter the Fed from hiking at all, though he sees a single 25bp hike as the baseline view. He listed a U.S. government shutdown, further declines in oil prices, and a further stock sell-off as factors that could still deter a hike.
Euro and Aussie slide against the dollar
The euro dropped 0.6% to $1.1092 after a 0.5% drop on Tuesday.
Meanwhile, the Australian dollar slipped 0.2%, unable to recover after plummeting nearly 1% to a seven-month low in the previous session.
Currency desks now turn to European data due later this week, including a preliminary reading of third-quarter Eurozone gross domestic product, UK GDP figures and speeches from European Central Bank policymakers led by President Christine Lagarde.
Source: Investing.com
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