The US Dollar Index (DXY) reached a 19-month high of approximately 102.9 on Wednesday. This level was last recorded in April 2025. The rise follows a period in early 2025 where the currency dropped more than 10%, marking its weakest start to a year since 1973.
The recent growth is driven by higher-than-expected inflation, with consumer prices increasing by 0.4% in October, exceeding the forecasted 0.3%. Consequently, traders anticipate the Federal Reserve will raise interest rates again at the meeting scheduled for December 9.
CME FedWatch currently estimates an 87% probability of a rate hike in December. Fed Governor Christopher Waller has indicated that a 25-basis-point increase may be insufficient to maintain credibility, suggesting a larger move could be considered.
The strengthening dollar has impacted other assets, with spot gold prices falling nearly 1% to $3,992.43 per ounce. Meanwhile, US Treasury yields have exceeded 5% this week, placing additional pressure on American households managing record credit card debt.
Analysts suggest the dollar's recovery is largely tied to hawkish interest rate expectations and safe-haven buying amid geopolitical tensions. Despite the rebound, some economists maintain that the long-term position of the dollar franchise is weakening.
