The dollar hit a new high in nearly a year and a half on the back of U.S. inflation data

The U.S. dollar strengthened to its highest level in more than a year following the release of U.S. inflation data, which—due to rising gasoline and energy prices in September—showed the fastest rate of increase in the last five months, according to Bloomberg. This prompted traders to more actively price in the possibility of a tightening of the Fed’s monetary policy.

The Bloomberg Dollar Spot Index (which tracks the U.S. dollar’s exchange rate against a basket of global currencies) rose 0.5% on Wednesday, October 14, reaching its highest level since May 2025, according to Bloomberg. The dollar has thus been rising for the fifth consecutive week, gaining nearly 3.5% over that period—its longest winning streak since the beginning of 2025, the agency notes.

On October 14, all currencies of the "Big Ten" countries weakened against the dollar, with the euro falling 0.7%, continuing the decline that began in October.

The dollar's rise is being driven by traders' expectations regarding interest rates after the Fed raised borrowing costs in September for the first time in three years. The market is currently pricing in roughly two Fed rate hikes by the end of January, including a roughly 50-50 chance of another hike as early as October.

On Wednesday, growing expectations of a possible imminent Fed rate hike had a positive effect on the dollar. The U.S. currency also strengthened amid a sell-off in U.S. Treasury bonds: Treasury prices fell, causing yields across all maturities to rise.

The widening interest rate differential between the U.S. and other countries is benefiting the dollar, and many Wall Street strategists are revising their forecasts for the U.S. currency, according to Bloomberg. According to the Commodity Futures Trading Commission (CFTC), speculative traders increased their long positions in the dollar to more than $35 billion during the week ending October 6.

“Market expectations regarding the Fed’s October meeting quickly swung in the opposite direction,” said Bank of America strategist Alex Cohen, noting that before the inflation data was released, traders had barely priced in the likelihood of a Fed rate hike in October. “Inflation came in significantly higher than most forecasts, which gave the dollar an additional boost,” he added.

"The better-than-expected CPI data sent the dollar higher as traders priced in further aggressive tightening by the Fed," said Andrew Hazlett, a currency trader at Monex.

This article is being updated

This article was AI-translated and verified by a human editor