Dollar jumps 0.51% to 102.20 as markets price in December rate hike
Key Facts
The dollar index rose 0.51% to 102.20 on Tuesday, November 10, after U.S. price data showed inflation above market expectations and a Federal Reserve official’s remarks reinforced bets on tighter monetary policy. Markets priced in an 89% chance of a U.S. rate hike in December, according to Reuters, citing CME Group’s FedWatch tool. Headline inflation’s monthly reading was slower than in September but exceeded the forecast in a Reuters poll, while core inflation remained above estimates. In a speech that day, Fed Governor Christopher Waller said inflation “remains much too high” and that he saw a need for further tightening “sooner rather than later.” Shifting rate expectations coincided with sharp moves in bonds and major currencies.
Data from the Bureau of Labor Statistics showed the Consumer Price Index rose 0.6% in September, after a 0.4% increase in August; October’s increase was slower than September’s but exceeded a forecast of 0.3%, according to a Reuters comparison. Core inflation, which excludes food and energy, rose 0.3% month on month in October, matching its pace in September and August but exceeding the market forecast of 0.2%. The slowdown in the monthly headline rate was therefore not enough to offset the report’s surprise, as the core reading came in above estimates and held at the pace of the previous two months. In September, annual core inflation accelerated to 2.6% from 2.4% the previous month, according to Axios. The bureau did not release an annual inflation rate for October because October 2025 data needed for comparison were unavailable following last year’s government shutdown, according to the Associated Press.
Other components of the report recorded varying increases: the food index rose 0.5% in October and the energy index climbed 0.7%, after energy rose 5.2% in September, according to the Bureau of Labor Statistics. Monthly energy inflation slowed sharply from the previous month, but the core increase remained at 0.3% and exceeded the market forecast. Against the backdrop of debate over the price outlook, Waller cited September personal consumption expenditures data, with the index rising 0.5% during the month and 3.7% over 12 months. The core personal consumption expenditures index also rose 0.3% in September and 3.1% year on year, according to his speech published on the Federal Reserve’s website. Waller said persistently elevated inflation supported further monetary tightening, linking his position to the price indicators cited in his speech.
Rate repricing extended to the Treasury market, with the U.S. two-year yield jumping 19.07 basis points to 4.738% after the data were released, according to Reuters. The agency noted that the yield typically moves with monetary policy expectations, putting it at the center of the market’s response to the inflation reading and Waller’s speech. In foreign exchange markets, the euro fell 0.48% to $1.117, while the dollar rose 0.47% to 158.66 yen and gained 0.89% to 0.8251 Swiss francs. The Australian dollar fell 1% to $0.6855, and the New Zealand dollar declined 0.59% to $0.5597, according to Reuters. The moves came in the same session that the dollar index rose, as markets priced in the possibility of a December rate hike.
Before the October report was released, Waller had said he might consider a larger-than-usual rate increase if monthly core inflation came in at 0.3% or higher, according to Axios. Core inflation did register 0.3% in October, according to Bureau of Labor Statistics data, above the market forecast of 0.2%. After the data were published, Waller called for further tightening in his speech, saying inflation “remains much too high.” The threshold he cited before the report provides context for his position on the day of its release, while October’s reading and its details remained among the data informing assessments of the monetary policy outlook. The 89% probability of a rate hike reflects market pricing observed that day, according to the FedWatch tool as cited by Reuters.
Looking ahead, the Federal Reserve will meet on December 8 and 9 and hold a press conference on December 9, according to the central bank’s calendar. The meeting will be preceded by the release of the November Consumer Price Index on December 10 at 8:30 a.m. Eastern time, according to the Bureau of Labor Statistics. November’s reading will follow October data for which no annual rate was available for comparison, while the December release will provide a new report before the end of the month. The announced milestones center on the committee meeting and the release of price data; both come after markets on November 10 put the priced-in probability of a December rate hike at 89%. The dollar and two-year Treasury yield rose in the November 10 session as core inflation exceeded expectations and Waller called for further tightening.