U.S. dollar surges to biggest weekly gain since September on Fed hike certainty

Investing.com — The U.S. dollar took out a fresh 19-month high on Friday and was headed for its strongest week since mid-September. The greenback’s rally has been sparked by a sharp rise in Federal Reserve interest rate hike expectations.

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At 15:37 ET (20:37 GMT), the U.S. dollar index, which tracks the world’s premier currency against a basket of six major peers, climbed 0.2% to 103.41, its highest level since April 2, 2025. For the week, the gauge was up 1.1%.

PPI provides some relief, but Fed hike certain

The dollar’s run began last Friday after the release of the U.S. jobs report. Total nonfarm payroll employment rose by 165k in October, surging past the consensus estimate of 65k. Additionally, employment for August and September were revised upward by a combined 84k.

After taking a breather on Monday, the dollar renewed its ascent on Tuesday following hotter-than-expected U.S. consumer price index (CPI) readings. Headline consumer prices ticked up 0.4% M/M in October, moderating from a 0.6% rise in September but coming in higher than the anticipated increase of 0.3%. Core CPI, which strips out volatile food and energy prices, remained steady at 0.3% M/M, coming in a tad above the 0.2% consensus.

With the data showing a combination of a stellar labor market and stubbornly high inflation, a central bank in such a scenario typically tightens monetary policy. Adding to the hawkishness, Fed Governor Christopher Waller on Tuesday said he backed hiking rates even if the inflation data had been cooler than anticipated, adding that a higher-than-usual 50 basis point hike to the key policy rate could be warranted if the data comes in hot.

On Friday, the latest producer price index (PPI) report provided some relief. Headline PPI ticked up 0.3% M/M in October, decelerating markedly from September’s 1.4% rise and coming in below the consensus estimate of 0.4%. On a Y/Y basis, headline PPI climbed 6.5%, below the forecast of 6.6%. Still, this was the largest 12-month increase since November 2022.

“The good news is that producer price inflation cooled from September. The bad news is that it may not have cooled enough to give markets the rate relief they want. With producer inflation still running at 6.5% Y/Y, today’s report increases the risk that restrictive rates stay with us longer than investors hoped,” Chris Osmond, chief investment officer at Fifth Third Wealth Advisors, said.

“Perhaps more important than the headline number is the broadening of inflation beyond energy. Energy prices actually declined in October, yet food prices rose 1.3%, services increased for a fifth consecutive month and transportation and warehousing costs rose 2.0%. That suggests inflation is working its way into the broader economy rather than remaining concentrated in the original areas of price pressure. If that continues, it becomes much harder for the Fed to simply look through inflation as temporary,” he added.

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As per the CME FedWatch tool, traders see a Fed rate hike in December as a certainty. The question is how big the hike will be. The odds of a 25 basis point hike stand at nearly 90%, while those of a supersized 50 basis point one at about 10%. Higher rate environments tend to strengthen the dollar.

Yen breaches 160 again

Turning to other major currencies, the dollar’s climb exerted pressure on the Japanese yen, which was on track for its worst weekly performance against the greenback since mid-September. The yen was last trading at 159.76 a dollar, having earlier hit a session low at 160.19 a dollar.

This was the second straight session the yen had breached the key 160 level, after having done it for the first time since September 2 on Thursday. The threshold has historically triggered aggressive currency intervention from authorities in Tokyo.

On Monday, Japan’s Ministry of Finance said it had spent a total of 15.4 trillion yen ($96.38 billion) in FX intervention operations from July through September, including a single-day record of 7.98 trillion yen on July 30, and 5.55 trillion yen in an unprecedented joint action with Washington on July 31. It was the first coordinated buying of yen with the U.S. since 1998.

Top Japanese currency diplomat Atsushi Mimura warned against “one-sided moves,” reminding traders that it was “too early to forget” the joint intervention.

Euro’s worst week since October

Over in Europe, the dollar weighed on the single currency. The euro shed 0.3% to $1.1022, and was set for its worst week since early October.

Earlier, official flash estimates showed the eurozone’s gross domestic product rose 0.4% in Q3 2026, slowing down from a 0.6% increase in Q2 and matching consensus estimates. The data also gave an update on the labor market, with eurozone employment growth coming in flat for the quarter.

Ambar Warrick, Pranav Kashyap, and Jaiveer Shekhawat contributed to this article

Original Article

U.S. dollar surges to biggest weekly gain since September on Fed hike certainty

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