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

The dollar index reached a 19-month high against major currencies on Thursday, driven by heightened expectations of a Federal Reserve rate hike, while the yen softened following a dovish central banker's speech. Traders increased speculation of further Fed tightening after stronger-than-expected October inflation data and hawkish comments from US central bank officials.

Goldman Sachs and other major brokerages now anticipate another rate hike early next year, alongside the December hike. New York Fed President John Williams, set to speak on a panel that day, is expected to provide insights on potential rate hikes. The dollar index climbed 0.15% to 103.02, the highest since April 2025. Following a hotter-than-expected October CPI report, Fed officials seemed eager to discuss rate hikes, according to National Australia Bank's Gavin Friend.

The dollar/yen pair climbed to a two-month high of 159.83, aided by significant interest-rate differentials and increased bets on additional Fed hikes. Bank of Japan board member Toichiro Asada, a dissenter from the September decision to raise borrowing costs, warned that premature rate hikes could harm growth and lower underlying inflation.

Japan's top currency diplomat, Atsushi Mimura, cautioned against forgetting Japanese intervention during the summer, briefly pushing the dollar/yen pair to its lowest level of the day. However, the yen found support again once the dollar/yen exchange rate exceeded 160, with market analyst Sho Suzuki noting that caution would likely increase.

Analysts in a Reuters poll expect the next Bank of Japan rate hike as early as next month, supported by Japan's annual wholesale inflation rebounding to 7.1% in the year to October, up from 6.8% in September. The euro appreciated 0.06% against the US dollar at US$1.1096, while the British pound slipped 0.1% to US$1.3266. The Australian dollar remained flat against the greenback at US$0.6847, and New Zealand's kiwi fell 0.05% to US$0.5559. In cryptocurrencies, Bitcoin fell 0.63% to US$73,848.24, and Ether declined 0.49% to US$2,058.18.