Dollar rises to 19-month high as Fed hike bets grow, yen softens

The US dollar reached a 19-month peak against major currencies on Thursday, driven by heightened expectations of Federal Reserve rate hikes, while the Japanese yen experienced a softening. Traders intensified their bets on additional Fed tightening after witnessing stronger-than-anticipated October inflation data and a series of cautious remarks from US central bank officials.

They indicated a concern over persistent inflation and the possibility of a larger 50-basis-point increase. Several prominent brokerages, including Goldman Sachs, now anticipate another rate hike early next year, alongside one scheduled for December.

The dollar index, which tracks the greenback against a basket of currencies, surged 0.15% to 103.02, marking its highest level since April 2025. New York Federal Reserve President John Williams is slated to address a panel on Thursday, a session that will be closely scrutinized due to his insights into potential Fed rate hikes ahead of the October meeting.

Gavin Friend, a senior markets strategist at National Australia Bank, observed that following a hotter-than-expected October CPI report, Fed officials seem eager to emphasize rate hikes. Any comments from Williams are anticipated to be closely monitored.

The dollar rebounded 0.04% against the Japanese yen, trading at 159.83, after initially declining. This increase was fueled by significant interest-rate differentials, as traders amplified their forecasts for further Fed hikes. The milestone was reached earlier on Thursday. Bank of Japan board member Toichiro Asada, one of two dissenter policymakers who dissented from September's decision to raise borrowing costs to 1.25%, cautioned against premature rate hikes, arguing that they could stifle growth and suppress underlying inflation.

His warning, alongside a statement from Japan’s top currency diplomat Atsushi Mimura that intervention by Japanese authorities during the summer was "too early," contributed to the dollar/yen pair hitting its lowest point of the day. However, the yen’s respite was short-lived. Analysts at Matsui Securities noted that once the dollar/yen exchange rate surpasses 160, cautionary measures would likely intensify.

They suggested that the pair may struggle to break above 160 unless there are substantial shifts in expectations for BOJ rate hikes, such as a rise in expectations for Fed hikes or a decrease in expectations for BOJ hikes. Currently, many analysts in a Reuters poll predict the next Bank of Japan rate hike will occur as early as next month.

This expectation was reinforced by Japan’s annual wholesale inflation data, which showed a rebound in inflation to 7.1% for the year ending in October, up from 6.8% in September. The euro climbed 0.06% against the US dollar at $1.1096, while the British pound slipped 0.1% to $1.3266. The Australian dollar remained stable against the greenback at $0.6847, whereas New Zealand’s kiwi currency dropped 0.05% to $0.5559.

In the realm of cryptocurrencies, Bitcoin experienced a 0.63% decline, settling at $73,848.24, while Ether also decreased by 0.49% to $2,058.18.