The US dollar climbed to a four-week high against a basket of major currencies after US inflation data—which came in higher than expected—bolstered expectations for a Federal Reserve interest rate hike in December. The DXY dollar index rose 0.2% to reach 102.515 during Wednesday’s trading session (November 11).
The market has now almost fully priced in a 25-basis-point interest rate hike for December. These expectations intensified following the release of the US Consumer Price Index (CPI) for October, which revealed persistent price pressures, reinforcing the view that the Federal Reserve needs to maintain a tight monetary policy.
However, for the dollar’s rally to continue, it may require an additional catalyst. According to DHF Capital, further gains would likely depend on growing speculation regarding a 50-basis-point hike—a more aggressive move than the 25-basis-point increase currently serving as the market’s base-case scenario.
Attention now shifts to the US Producer Price Index (PPI) data due on Friday. Should this producer-level data also indicate strong price pressures, expectations for a more aggressive Fed policy could intensify, providing further momentum for the dollar.