The US Dollar has surged to a new year-to-date high of 103.08, driven by market expectations of a faster pace of Federal Reserve rate hikes. MUFG’s Lee Hardman notes that futures now fully price in a 25 basis points (bps) rate hike in December, with additional tightening expected into January.
Markets are currently pricing in around 28bps of hikes by December and 43bps by January, suggesting that even if the Fed raises rates by 25bps in December, another 25bps hike is likely in January. This anticipation has bolstered the Dollar Index, reflecting the renewed upward momentum in the US dollar.
New York Fed President John Williams recently stated that it is an “appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make sure we achieve a timely return to our 2% target.” While a larger 50bps hike in December is not expected, the likelihood of back-to-back hikes in December and January has increased.
Upcoming Fed speakers will be closely watched for further confirmation of this aggressive stance, as markets continue to reprice the dollar based on these expectations.