US Dollar Holds Near Recent Highs as Markets Reprice Fed Expectations

(MENAFN- MENAFNEditorial)



The US dollar held steady near recent highs on Wednesday afte’ Tuesday’s advance. US bond markets closed for Veterans Day. Hotter-than-expected October inflation had prompted traders to price in more Federal Reserve tightening, driving the largest one-day rise in the two-year yield in more than a year yesterday.

October’s core reading met the threshold at which Fed Governor Christopher Waller said a half-point increase in December should be considered. Dallas Fed President Lorie Logan also said at least two more quarter-point hikes may be needed, possibly soon. October payrolls came in well above forecasts, giving policymakers more room to tighten. Markets still price a quarter-point move in December, but the odds of a larger increase are rising and further hikes are expected through mid-2027.

Tighter policies abroad could l’mit the dollar’s gains. Signals from the Bank of Japan have strengthened expectations of a December interest rate hike, which would support the yen. Expectations of another ECB rate hike would also support the euro, although political tensions could cap gains. In the UK, the Bank of England recently raised interest rates, but Chief Economist Huw Pill adopted a cautious stance on a prolonged tightening cycle, which could favour the greenback.

With a December hike already the base case, further dollar gains may require stronger bets on a half-point move. A firm PPI reading or hawkish Fed remarks could lift yields and push the dollar above recent highs, while softer data or resistance to a larger hike could unwind some of the post-CPI gains. Geopolitically, oil has stabilised following a sharp drop to multi-week lows. Developments in the Middle East could put further downward pressure on prices and ease inflationary pressures, moderating interest rate expectations and weighing on the currency and yields.

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