Dollar gains as hot inflation, hawkish Fed talk lift rate-hike bets

The US dollar experienced an upward trend on Wednesday, following inflation data and comments from the Federal Reserve officials that increased the likelihood of an interest rate hike in the coming month. The US Dollar Index, which gauges the strength of the greenback against six other currencies, saw a 0.2% increase and neared a two-week high.

On Tuesday, the index rose 0.5% after US consumer prices rose unexpectedly in October, marking the third consecutive month of positive surprises. The dollar maintained broad-based support due to expectations of more aggressive monetary tightening from the Fed, according to Rory Glass, an FX dealer at Marex in London. The euro experienced a slight depreciation to $1.114, while the pound fell 0.2% and was close to a two-week low.

The Japanese yen weakened slightly, nearing a seven-week low, and the Australian dollar was the only G10 currency to rise against the dollar. Traders now anticipate a 25-basis-point rate hike by December, with slim chances of a 50-basis-point hike, according to the CME FedWatch Tool. Most developed-market currencies have weakened against the dollar this year due to an interest-rate gap, and some analysts attribute the dollar's strength to safe-haven flows resulting from the US-Israeli war in Iran.