US dollar continued to strengthen, holding near its highest level in two weeks as financial markets increased their expectations of another Federal Reserve interest rate hike at its upcoming meeting. The currency was supported by stronger than expected US inflation data and hawkish remarks from central bank officials.
The latest economic data showed that the US Consumer Price Index rose by 0.4% in October, exceeding analysts’ expectations of a 0.3% increase. The reading raised concerns that inflationary pressures remain persistent and continue to hold at elevated levels.
Federal Reserve Governor Christopher Waller expressed support for raising interest rates in December even if inflation moderates, noting that policymakers could consider a larger 50 basis point increase if price pressures intensify. Dallas Fed President Lorie Logan also stated that the central bank needs at least two additional quarter point rate hikes to bring inflation under control. Following these remarks, markets priced in a 91% probability of a 25 basis point increase, while the likelihood of a larger 50 basis point hike climbed to 10%.
In currency markets, the euro declined, while Asian currencies faced mixed pressures. Lower oil prices provided some relief to energy importing economies, but rising US Treasury yields and a stronger dollar limited potential gains. The Japanese yen weakened toward its lowest level in six weeks, reaching 158.95 yen per dollar, while the Australian dollar recorded a modest recovery and the Indian rupee edged slightly lower.
In energy markets, Brent crude briefly slipped below $90 per barrel, reaching its lowest level since August as diplomatic efforts continued to ease conflicts in the Middle East. Lower oil prices could help improve trade conditions and reduce energy import costs for major oil importing economies.
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