Dollar climbs to 102.30 as traders fully price December Fed hike
The dollar index rose 0.1 percent to 102.30 on Wednesday, approaching its highest level since October 29, after a hotter-than-expected U.S. inflation reading left traders in no doubt that the Federal Reserve will raise rates in December.
U.S. consumer prices rose 0.4 percent in October on a seasonally adjusted basis, the Bureau of Labor Statistics said, above the 0.3 percent economists had expected. Core CPI, which strips out food and energy, climbed 0.3 percent against a 0.2 percent forecast. Shelter costs added 0.3 percent and accounted for more than 30 percent of the monthly increase, while food rose 0.5 percent and energy 0.7 percent. The bureau did not publish its usual annual figure because comparable October 2025 data were unavailable after last year's government shutdown.
Fed funds futures now imply an 85 percent probability of a 25-basis-point increase in December and a 15 percent probability of a 50-basis-point move, according to CME FedWatch data, putting the probability of a hike at 100 percent. A day earlier, traders still assigned a 16 percent probability to a pause. The benchmark 10-year Treasury yield jumped 13.8 basis points to 4.996 percent, near the 5 percent mark that tends to support the dollar by lifting returns on dollar assets.
Policymakers sharpened the message on Tuesday. Governor Christopher Waller said he would "still support a 25 basis point increase in the FOMC's policy rate at our December meeting", adding that core CPI near 0.3 percent or higher could justify 50 basis points. Dallas Fed President Lorie Logan went further: "It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases." She said the target range sits at least 50 basis points below the level needed for modest restraint.
The repricing weighed on other currencies. The euro slipped to $1.1163 from $1.1220 before the data, sterling held at $1.3346 and the yen was steady at 158.82, keeping intervention risk in view. The Australian dollar edged up 0.1 percent to $0.6875 after touching a seven-month low. Markets also price better-than-even odds of another increase in January.
