US Dollar Strengthens as Traders Expect More Federal Reserve Rate Hikes

The US dollar strengthened against major currencies on Wednesday as traders increased bets that the Federal Reserve will raise interest rates following hot inflation data and comments from policymakers. Traders have raised bets on a 25-basis-point rate hike in December to 87% from about 70% a month ago, according to CME's FedWatch Tool, after US consumer prices rose more than expected in October for a third consecutive month.

Market Impact

Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co., stated that the broad-based strength in the dollar is underpinned by a hawkish shift in expectations driven by the hot October consumer price index print and comments from Fed officials. The dollar rose 0.69% to 159.84 against the Japanese yen, hitting its strongest in over two months and nearing the 160-per-dollar mark. The euro dropped 0.65% to $1.11, hitting its lowest since May 2025. The pound fell 0.50% to $1.33, while the dollar strengthened 0.93% to 0.833 against the Swiss franc.

Policy Reactions

Recent comments from Fed officials, including Governor Christopher Waller and Dallas Fed President Lorie Logan, signaled unease over high inflation and the possibility of a large 50-basis-point hike. Brokerages have revised their calls on future monetary policy, with Goldman Sachs expecting hikes in December and March, while Deutsche Bank expects hikes in December, January and March. Meanwhile, bitcoin gained 0.93% to $74,460.41, and Ethereum rose 1.19% to $2,079.31.

Context

Currency values fluctuate based on relative interest rates and economic data from different countries. Higher interest rates typically attract foreign investment into a country, which drives up demand for its currency.