Dollar Gains as Markets Bet on Another Fed Rate Hike

what happened

According to dpa-AFX, the U.S. dollar strengthened against major currencies during Monday’s European session. Traders reduced the likelihood of a rate increase at the Fed meeting in late October, while expectations for a 25-basis-point move in December remained firm. CME Group’s FedWatch Tool put the probability of another increase in borrowing costs before year-end at 85%.

Minutes from the September FOMC meeting, released last Wednesday, confirmed that policymakers still view inflation as the main threat to macroeconomic stability. Geopolitical risks also remained elevated after the Iran-backed Houthi militia intensified attacks on Saudi Arabia with ballistic and cruise missiles and drones, including a strike on King Khalid International Airport in Riyadh. Saudi Arabia promised retaliation, while U.S. President Donald Trump hinted at joining operations against the group and resuming attacks on Iran. An Iranian senior security official called Washington’s response to Iran’s proposal to reopen the Strait of Hormuz inadequate.

Traders are now awaiting the U.S. Consumer Price Index on Wednesday and the Producer Price Index on Thursday. Remarks by Fed Chair Kevin Warsh at the World Bank and IMF annual meetings in Bangkok on Friday could also affect the dollar. During European trading, the greenback reached 1.1173 per euro, 158.65 per yen, 1.3228 per pound, 0.8334 per Swiss franc, 0.6996 per Australian dollar, 0.5593 per New Zealand dollar and 1.4268 per Canadian dollar. Canadian stock markets are closed for Thanksgiving Day.

why it matters

Expectations of tighter Fed policy and a persistent geopolitical risk premium are supporting the dollar. The upcoming CPI and PPI releases, along with Kevin Warsh’s remarks, may influence market views on the path of interest rates.

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