The US dollar maintained its upward momentum in early Asian trading on Wednesday, reaching near a two-week high. This surge came after a stronger-than-anticipated inflation report and hawkish remarks from Federal Reserve officials, which heightened expectations of a rate hike next month.
The US dollar index, which tracks the greenback's performance against a basket of six currencies, held steady at 102.22, approaching its highest level since October 28. The index had risen 0.5% on Tuesday following data showing that US consumer prices increased more than expected in October, driven by higher costs for food and accommodation.
Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, noted that the market is not just pricing in another rate hike but is also questioning how restrictive US monetary policy may ultimately need to become. This debate has significant implications for risk assets.
The dollar remained strong against its major peers in early Asian trade. The euro and the British pound were flat at $1.1168 and $1.3345, respectively. Against the yen, the US dollar was unchanged at 158.715 yen. The Australian dollar rose 0.1% to $0.6870, recovering slightly from a seven-month low, while the New Zealand dollar was flat at $0.5605.
Comments from voting members of the Federal Reserve's rate-setting committee have increased expectations for further rate hikes, with traders now all but abandoning bets that the Fed will pause at its next policy meeting on December 9. Fed funds futures indicate a 91.9% chance of a 25-basis-point rate hike next month, up from 84% a day earlier. Markets have also priced out the possibility of a pause and see a 9.1% chance of a larger 50-basis-point move, with better-than-even odds of a second hike in January.
The yield on the US 10-year Treasury bond rose 13.8 basis points to 4.996%. In cryptocurrencies, bitcoin was down 0.3% at $73,566.45, while ether was 0.5% lower at $2,044.61, both trading near three-month lows.