Dollar climbs to a 19-month high and the euro hits an 18-month low as traders price in Fed hikes

The dollar rose to a 19-month high on Wednesday as markets increasingly bet on more aggressive interest-rate hikes by the Federal Reserve¹. It strengthened against rival currencies¹.

The euro fell to an 18-month low against the dollar, dropping to $1.1084 in Europe’s afternoon trade². The yen slumped as Fed rate-hike bets boosted the dollar⁴.

The move followed recent comments from Fed officials including Governor Christopher Waller and Dallas Fed President Lorie Logan, who signaled unease over high inflation³.

The moves were broad: the dollar gained against rival currencies¹, the euro touched an 18-month low², and the yen weakened⁴. Fed officials’ comments on inflation were the common thread in the coverage^3,5.

Why it matters to investors

The market is fully pricing in a 25-basis-point increase in December, after Waller on Tuesday boosted bets on a December hike⁵. The dollar advanced as markets priced in that move³, and one assessment holds that the dollar’s strength could persist on the prospect of further US rate rises⁵.

A stronger dollar pressures other central banks. With markets rapidly factoring in more Fed hikes, the Bank of Japan will likely have to follow suit to support the yen, according to one analysis⁴. The euro’s slide came as markets weighed the outlook for European Central Bank rate increases following a pullback in oil prices².

The dollar rose early on Wednesday with a light US data schedule because of the holiday⁶. Thin data meant the currency move was driven by rate expectations rather than new economic releases^1,6.

The 19-month high¹ marks how far rate expectations have shifted in a short period⁵.

The yen’s slide puts the Bank of Japan in a similar position to other central banks facing a stronger dollar, according to the analysis that expects it to follow the Fed⁴.

What to watch

The December Fed meeting is the main event, with a 25-basis-point hike fully priced⁵. Any further remarks from Waller or Logan could move expectations again³.

Outside the United States, Canadian consumer sentiment data for November were due at 11:00 am ET, and the next Bank of Canada meeting is scheduled for Dec. 9⁶. Investors will also watch whether the Bank of Japan signals a response to the weaker yen⁴, and whether the euro holds above its 18-month low².

The question for global assets is whether the dollar’s rise extends, as some expect⁵, or fades if Fed officials temper their message¹.