Dollar Hits 103.08, Highest Since April 2025, on Rate-Hike Bets
Key Facts
The dollar index rose 0.03% to 102.88 in Thursday’s session on November 12, after reaching 103.08, its highest level since April 2025, according to Reuters. The peak followed strong U.S. inflation data that led investors to reprice the Federal Reserve’s rate path. The agency said the hawkish repricing drove short-term U.S. Treasury yields sharply higher. But the index retreated from the session high, ending with a modest gain in the published reading. The move reflected the currency market’s sensitivity to U.S. monetary policy expectations, as focus shifted from price data to the possibility of further rate hikes.
Data from the Bureau of Labor Statistics showed the U.S. consumer price index rose 0.4% in October, after a 0.6% increase in September. The core index, which excludes food and energy, rose 0.3% in October, the same rate recorded in August and September. That means the monthly increase in the headline index slowed from the previous month, while core price growth held at the pace recorded over the prior two months. The figures provided the backdrop for the tightening bets that Reuters linked to the dollar’s rise and higher short-term bond yields. The data show a combination of a slower monthly increase in the headline index and core inflation remaining at 0.3% for three consecutive months.
In a speech published on November 10, Federal Reserve Vice Chair for Supervision Michelle Bowman said 12-month core personal consumption expenditures inflation may have risen to 3.3% in October. She added that tariffs, energy and price pressures related to artificial intelligence each accounted for about a quarter of core inflation above target in the 12 months through September. Bowman said, "Each of these factors accounted for about a quarter of core inflation above target" during that period. Her estimates linked multiple sources of price pressure to inflation remaining above the central bank’s target. This comes as inflation data have made rate bets a key driver of dollar moves.
Reuters reported that some brokerages, including Goldman Sachs, now expect a rate hike in December, followed by another early next year. Tiffany Wilding of Pimco said the risk that inflation remains elevated in the near term tilts toward rate hikes at the December and January meetings, with another increase possible in March. She added, "The risk of persistent near-term inflation tilts toward hikes at the December and January meetings, with another hike possible in March." These estimates reflect financial institutions’ expectations that price pressures could keep the rate path rising after the next meeting. At its last decision on October 28, the Fed left the target range for interest rates unchanged, by a 10-to-2 vote, with two members preferring a quarter-percentage-point increase.
The divergence in monetary policy expectations also extended to the euro, which fell 0.03% to $1.1086 after reaching $1.106675 in Asian trading, its lowest level since May 2025, according to Reuters. A Societe Generale analyst said the European Central Bank "is likely to stop raising rates after its December meeting." The expected difference in the rate paths of the two central banks could widen the gap in the dollar’s favor, according to the analyst’s assessment. Other currencies also came under pressure against the U.S. currency; the yen fell 0.04% to 159.71 per dollar after the dollar touched 159.945 yen, its highest level in more than two months. A Japanese official warned that markets should not forget the intervention earlier in the summer.
The Bureau of Labor Statistics is scheduled to release the U.S. October producer price index on November 13 at 08:30 a.m. Eastern Time. The Federal Reserve will hold its next meeting on December 8 and 9, with investors watching the rate decision amid the hike bets reported by Reuters. New York Fed President John Williams was also scheduled to appear on a panel late Thursday. A Societe Generale analyst said Williams’s support for a 50-basis-point increase, or even discussion of one, could prompt markets to reprice the rate path and bolster the dollar. These dates place price data, Fed officials’ remarks and the December decision among the near-term events followed by the currency market.