December Rate-Hike Bets Support Dollar Amid Iran Tensions
Key Facts
The U.S. dollar held steady during Friday’s Asian session, November 13, after rising for three days, as markets priced in further monetary tightening at the Federal Reserve’s December meeting. FXStreet reported that the FedWatch tool showed a full pricing of a 25-basis-point rate hike. Traders also put the probability of a larger 50-basis-point increase at about 13%. This pricing reflects market expectations for the rate path, as price data and hawkish comments fueled bets on tighter policy. Geopolitical risks linked to Iran kept demand for the dollar as an additional factor in its movement.
FXStreet attributed the shift in rate expectations to October inflation data that came in above expectations, along with hawkish comments from Federal Reserve officials. The Bureau of Labor Statistics report showed that the Consumer Price Index for All Urban Consumers rose 0.4% in October month over month, after increasing 0.6% in September. The core index, which excludes food and energy, rose 0.3% in October, the same monthly increase recorded in August and September. The Associated Press reported that annual inflation was 4% in October, compared with 3.7% in September. The agency also said the breadth of price increases heightened Fed officials’ concern about persistent inflation.
FXStreet said rising oil prices kept the yield on the 10-year U.S. Treasury above 5%, supporting the dollar’s advance. The source linked this factor to an environment combining expectations of higher interest rates with elevated government bond yields. In the broader monetary policy debate, FXStreet cited RBC economists as saying that core inflation pressures, strong third-quarter GDP growth and a tight labor market support the need for further tightening. In September, the Federal Reserve raised rates by 25 basis points to a target range of 3.75% to 4.00%. That puts December bets in the context of an ongoing tightening cycle, as investors watch how persistent price pressures affect the Fed’s decisions.
Alongside rate expectations, regional tensions added potential support for the U.S. currency as a safe haven. FXStreet said the United States issued a new warning to Iran on Thursday. It also cited attacks on Saudi energy infrastructure and commercial vessels in the Strait of Hormuz as factors that boosted demand for the dollar. The Associated Press reported that Federal Reserve officials are monitoring the possibility that higher oil prices linked to the Iran war will continue to affect prices. According to the agency, officials discussed whether inflation would ease on its own if the war ended, oil prices fell and the impact of tariffs diminished.
Attention next turns to U.S. producer price data for October, scheduled for release on Friday, November 13, at 08:30 a.m. Eastern time. FXStreet described the indicator as the day’s most prominent economic release following the consumer price report. The Federal Reserve calendar also showed a discussion by Vice Chair for Supervision Michelle Bowman on November 13 at 10:50 a.m., and a speech by Vice Chair Philip Jefferson on November 16. FXStreet said remarks from influential members of the Federal Open Market Committee could affect expectations for the monetary policy path. The November consumer price report is scheduled for release on December 10 at 8:30 a.m. Eastern time.