Dollar extends gains as traders bet on December Fed hike

The dollar rose for a second day on Wednesday, November 11. Hotter-than-expected October inflation data and hawkish remarks from Federal Reserve Governor Christopher Waller led traders to bet more heavily on a December rate hike, possibly a larger one. The euro and sterling fell further, and Treasury yields stayed close to the highs they jumped to after the data.

The Consumer Price Index rose 0.4% in October. Core prices, which exclude food and energy, rose 0.3% for the third month in a row, Reuters reported. Economists had forecast 0.3% for the headline figure and 0.2% for core, according to CNBC Comcast Corporation ↗ 1.09%.reuters.com+1

Waller set the bar, then the data cleared it

Waller spoke in London on Tuesday, a few hours before the release. He said he leaned toward a quarter-point hike at the Fed's December 8-9 meeting even if inflation cooled. If core inflation came in "around 0.3% or even higher," he said, "a 50 basis point hike in the policy rate should be considered at the December meeting," Reuters Thomson Reuters Corporation ↗ 0.39% reported. Dallas Fed President Lorie Logan said it "may be possible to move more rapidly" than the quarter-point increase the Fed approved in September, according to Reuters.reuters.com+1

The two-year Treasury yield had its biggest one-day rise since early April 2025. The 10-year yield climbed toward 4.93%, The Star reported.thestar.com.my

Currencies reprice

On Wednesday, CME Group's ↗ 2.19% FedWatch tool showed traders putting the odds of a 25-basis-point hike in December at 87%, up from about 70% a month earlier, according to Reuters. The odds of a half-point move were around 10% to 15%, and traders' estimate rose and then partly fell back during Tuesday's session. The euro, EUR/USD, fell to its lowest level since May 2025. The pound, GBP/USD, hovered near a two-week low. Against the yen, USD/JPY, the dollar edged toward 160. Goldman Sachs ↗ 1.83% now expects hikes in December and March, and Deutsche Bank ↗ 0.59% expects increases in December, January and March, according to the same report.fidelity.com

ING ↗ 0.33% said the US yield curve was "bear flattening," meaning short-term yields were rising faster than long-term ones. That pattern usually supports the dollar. ING said the U.S. Dollar Index was trading near the year's highs and could soon retest resistance around 103, according to ING THINK. The bank also said a 50-basis-point hike may be too aggressive for many FOMC voters.think.ing.com

Doubts about the rally's breadth

Some analysts think the gains are not as broad as the headline index suggests. In an FXStreet analysis, Joshua Gibson wrote that most of the index's rise since August reflects euro weakness, since the euro makes up 57.6% of the basket. He noted that the Fed's broader trade-weighted dollar measure has gained only about half as much this year.fxstreet.com

Markets were thin on Wednesday because of the Veterans Day holiday. Traders are now looking to Friday's October producer price data for the next sign of whether the Fed will go beyond a quarter-point move.