United States Dollar Index gains further as prospects of a 50 bps Fed rate hike strengthen

• The US Dollar Index climbs towards 102.52 as expectations of a Fed 50 bps rate increase in December gain ground.
• Ahead of the US CPI release, the Fed’s Waller said higher or unchanged core readings could fuel concerns about a 50 bps interest rate rise.
• October’s US core CPI rose by 0.3% MoM, exceeding the forecast 0.2% increase.

With financial markets beginning to anticipate a larger Federal Reserve (Fed) interest rate increase at December’s policy meeting, the US Dollar (USD) is outperforming its major currency counterparts on Wednesday.

At the time of writing, a 0.3% gain has taken the US Dollar Index (DXY) to around 102.52, its highest reading in almost four weeks. The index measures the Greenback against a basket of six major currencies.

Markets Price In the Risk of a Jumbo Fed Rate Increase

The latest reassessment in markets has been “to consider the prospect of a 50bp hike,” according to analysts at MUFG. They emphasise that the shift is “only now being considered because of Waller’s comments prior to the CPI report rather than the CPI report itself.” Front-end yields have risen and Fed expectations have been repriced, with the analysts noting that “Waller’s comment that a stronger CPI print may warrant a 50bp hike has sparked a debate over whether Waller had knowledge of the CPI print,” contributing to those moves.

Waller’s argument that “the sticky inflation and energy risks warrant the reversal of the 75bps of cuts and hence why wait two meetings to do that.” has been followed by a shift in pricing. MUFG reports that “the OIS market is now partially pricing the risk of a 50bp hike on 9th December,” in response.

Nevertheless, MUFG warns that a larger increase should not be treated as the base case. The analysts write: “We remain sceptical of the need to hike by 50bps at this stage and suspect the majority will see the better risk-reward in going by 25bps,” while noting that “we still have another payrolls report (but no further CPI prints, although it’s the day after) before the FOMC meeting.” The possibility of markets moving further towards a 50bp outcome remains, with the bank adding that “a strong print plus a rebound in crude oil after the recent sharp drop would be one scenario of a possible more aggressive hike,” in its assessment.

Tuesday’s Consumer Price Index (CPI) release put October’s headline inflation increase at 0.4% month-on-month (MoM), above the 0.3% forecast. Core CPI, which strips out volatile food and energy items, rose by 0.3% over the same period, compared with expectations of 0.2%.

US Dollar Index Retains Bullish Bias Above Key EMA

Trading at 102.52 on the daily chart, US Dollar Index Spot retains a bullish bias following its Bullish Flag breakout. Continued trading above the 20-day Exponential Moving Average (EMA) at 101.91 supports that outlook.

At around 59, the Relative Strength Index (RSI) suggests a mildly positive tone without signalling overbought conditions.

The first support lies around 102.50, followed by the 20-day EMA at 101.91, which bolsters underlying demand. To the upside, the descending trend barrier near 102.94 provides the main clear resistance. Closing above it on a daily basis would reinforce the bullish outlook and allow a more decisive continuation of the recent rise.

(The technical analysis of this story was written with the help of an AI tool. Know more.)