US Dollar Surges to 19-Month High as Hot CPI and Fed Rate-Hike Bets Drive Broad Rally

The US dollar climbed to a 19-month high on Wednesday, with the dollar index (DXY) posting a 1.5-week peak after gaining 0.60% on Tuesday, as hotter-than-expected October CPI data and hawkish commentary from Federal Reserve officials reinforced bets on continued rate hikes. Traders are now pricing in a continuation of the Fed's rate hike cycle, lifting Treasury yields and accelerating dollar gains across G10 currencies.

GBP/USD fell below the 1.3300 psychological level, dropping 0.55% on the day, though sterling held up better against other currencies due to the Bank of England's own hawkish stance and elevated UK interest rates. UK GDP data is in focus as the next potential market mover for the pound. USD/JPY broke out to 10-week highs, with the 160 level now in focus for traders watching the yen's continued slide.

The euro slipped to $1.1095, down 0.66% from Tuesday's close, and Rabobank maintained its three-month forecast for EUR/USD to reach $1.10, citing reduced political risk for the dollar and skepticism that the ECB will raise rates as far as markets expect in 2027. Fast money traders now hold the largest net short position in EUR/USD since 2015. The Swiss franc was among the session's weakest performers, with USD/CHF rising 0.98% to 0.83325, while the Swedish krona also underperformed, moves analysts partly attributed to a bounce in US equities. Brazil's foreign exchange flows swung sharply negative, coming in at -$2.059 billion against a prior reading of $9.498 billion.