The dollar strengthened to the highest level in over a year as a hot US inflation reading pushed traders to add to bets that the Federal Reserve will raise interest rates.
The Bloomberg Dollar Spot Index surged Wednesday past its November peak. The gauge rose as much as 0.5% to the highest level since May 2025. US consumer prices advanced at the fastest pace in five months on rising fuel costs, according to Bureau of Labor Statistics data. Treasuries slumped, driving yields higher across maturities following the print.
“Hotter than expected CPI has given a boost to the dollar this morning as traders price in further tightening from the Fed,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc.
See more: Consumer Sentiment Falls to Five Month Low
The dollar extended its rally into a fifth week, up nearly 3.5% so far in the period, its longest winning streak since early 2025. The rally has been fueled by traders’ rate predictions since the Fed hiked rates for the first time in three years last month. The market is now pricing in about two Fed hikes by end of January, including a roughly 50-50 chance of a rate increase in October.
“Pricing for the October Fed meeting has swung quickly back,” said Alex Cohen, a strategist at Bank of America.
The consumer price index rose 0.6% in September from a month earlier, according to BLS data out Wednesday. On an annual basis, it advanced 3.7%, above the forecast of 3.6%. A key measure of underlying price pressures, excluding food and energy, rose 0.3% from the prior month with analysts expecting a 0.2% advance.
“Inflation came in well above most expectations, adding further upside momentum to the dollar,” said Cohen.
Elevated oil prices due to the ongoing war in Iran and heightened concern over fiscal and political risks in France have boosted demand for the haven currency. The war has also been lifting global yields. While central bank policymakers in other major countries are also gearing to raise borrowing costs to stem price growth, not all economies can handle the same amount of rate hikes as the US.
All currencies in the Group of 10 weakened against the greenback Wednesday, with the euro falling 0.7%, extending its decline in October. The euro “could continue to bear the brunt of the dollar rally” amid clouding fiscal outlook in Europe, according to Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole.
The Swedish krona was the worst performer among its peers, dropping 1%. While the yen, weighed down by lower rates in Japan and high energy prices, declined 0.4% on the day to trade at 158.93 per US dollar.
A widening interest-rate gap is favoring the dollar, with many strategists on Wall Street rethinking their outlook for the US currency. Speculative traders boosted their bullish stance on the dollar in the week through Oct. 6, holding more than $35 billion in wagers tied to the dollar rising, Commodity Futures Trading Commission data show.
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