FX.co ★ Dollar Holds Gains on Hawkish Fed Outlook

The US dollar index hovered around 102.2 on Wednesday, holding on to strong gains from the previous session as expectations for further Federal Reserve rate hikes intensified. The shift in sentiment followed hawkish remarks from Fed officials and stronger-than-expected US inflation data. Consumer prices rose 0.4% in October, above the 0.3% increase forecast by markets, while core CPI advanced 0.3% for a third straight month, also surpassing expectations of 0.2%.

Reinforcing the hawkish outlook, Fed Governor Waller signaled support for additional monetary tightening in December, noting he would back a half-percentage-point increase if inflation continues to accelerate. Dallas Fed President Logan similarly suggested that more aggressive rate hikes may be required to bring inflation under control. In response, markets are now pricing in a 91% probability of a December rate hike, up from 84% the previous day, and investors have started to factor in further potential increases in January and possibly April.