10.11.202618:07:33UTC+00Dollar Extends Gains on Hotter CPI, Hawkish Fed Comments

The dollar index extended gains to 102.3 on Tuesday, supported by growing expectations that the Federal Reserve may adopt a more aggressive pace of interest rate hikes in the coming months. The shift in sentiment followed a hotter-than-expected inflation print and increasingly hawkish remarks from Fed officials.

US consumer prices rose 0.4% in October, above the market consensus of a 0.3% increase, while core CPI climbed 0.3% for the third consecutive month, also exceeding forecasts of 0.2%. Reinforcing the hawkish outlook, Fed Governor Waller indicated that a 50bps rate hike in December may be warranted. At the same time, Dallas Fed President Logan backed at least two additional 25bps increases, suggesting that policy tightening may need to proceed more quickly than it has this autumn.

Money markets now imply roughly an 88% probability of a 25bps rate hike at the Fed’s next meeting, with further increases in January and potentially April also being priced in.