Dollar firms as hot inflation, hawkish Fed talk lift rate-hike bets

The dollar rose against most currencies on Wednesday, extending gains after inflation data and hawkish comments from Federal Reserve officials a day earlier fuelled bets that the US central bank will raise interest rates next month.

The US dollar index, which measures the greenback's strength against a basket of six currencies, was 0.3% higher at 102.53, hitting a four-week high.

The gauge traded up 0.5% on Tuesday after data showed US consumer prices increased by more than expected in October with costs higher for food and accommodations, marking a third consecutive month of upside surprises.

"The dollar has continued to have some broad-based support on the expectation that the Fed would be more aggressive in their monetary tightening," said Rory Glass, an FX dealer at Marex in London.

The Japanese yen eased 0.3% to its weakest in over two months, coming close to the psychologically important 160-per-dollar mark.

The euro depreciated to $1.113, extending losses after a fall of more than 0.5% on Tuesday. Data on Wednesday showed German inflation slowed to 2.8% in October, confirming a preliminary reading.

The pound fell 0.2% to $1.33 and was pinned near its lowest point in two weeks, while the Swiss franc weakened 0.5% to hit a two-week low. The Australian dollar edged 0.1% lower, hovering near a seven-month low.

Comments from voting members of the Federal Reserve's rate-setting committee signalling unease over high inflation have firmed up expectations for further rate hikes, with traders now fully pricing in a 25-basis-point rate hike in December, according to the CME FedWatch Tool.

Traders even saw slim chances of a 50-bp rate hike next month and close to 75 bps worth of hiking by September next year, according to data compiled by LSEG.

Some brokerages revised their calls on future Fed monetary policy after Tuesday's data, with Goldman Sachs now expecting hikes in December and March, while Deutsche Bank expects hikes in December, January and March.

Most developed-market currencies, barring the Australian dollar and the Norwegian crown, have weakened against the dollar so far this year as a widening interest-rate gap boosted the US currency.

Some analysts also attributed the dollar's strength this year to safe-haven flows amid the US-Israeli war on Iran.

In cryptocurrencies, bitcoin was 0.3% higher at $73,973.5, holding near its lowest in over two months. Ether held steady at $2,055.5.