Dollar Pressured by Hormuz Deal Prospects

The US dollar index held above 103 on Friday, hovering at its highest level since March 2025, supported by persistent inflationary pressures that strengthened expectations of further monetary tightening by the Federal Reserve. US producer prices rose 6.5% year over year in October, the fastest annual increase since 2022, although the reading was slightly below market expectations of 6.6%. Monthly PPI growth also undershot forecasts, rising 0.3% against expectations of 0.4%. Excluding food and energy, prices increased 5% annually and 0.3% month over month, both in line with estimates. Following another firm reading of underlying consumer inflation earlier in the week, markets widely expect the Fed to raise interest rates by 25 basis points on December 9. Meanwhile, President Donald Trump suggested Washington could forgo a deal with Tehran, renewing uncertainty over US-Iran relations.

The US dollar index held above 103 on Friday after gaining for three consecutive sessions and reaching its highest level since April 2025, supported by rising expectations of a more aggressive Federal Reserve tightening cycle. The rally followed stronger-than-expected US consumer inflation data and hawkish comments from Fed officials, with some policymakers indicating that a larger 50-basis-point rate increase could be necessary to bring inflation under control. Markets are currently assigning an approximately 85% probability to a 25-basis-point rate hike in December, while the likelihood of a larger 50-basis-point increase stands at around 15%. Traders are also increasingly factoring in additional rate hikes next year. Investors are now turning their attention to US PPI data for further indications of inflationary trends. Meanwhile, oil prices rebounded as President Donald Trump declared that the US no longer needs a deal with Iran, boosting safe-haven demand for the dollar.

The US dollar index hovered just below 103 on Thursday after gaining more than 1% over the previous two sessions, reaching its highest level since April 2025 amid growing expectations of further Federal Reserve rate hikes. The rally was supported by October inflation data that came in above market forecasts, alongside increasingly hawkish remarks from Fed policymakers. Fed Governor Christopher Waller cautioned that a 50-basis-point rate increase in December may be necessary, while Dallas Fed President Lorie Logan supported at least two additional 25-basis-point hikes as inflationary pressures continue to build. Markets are now assigning roughly a 91% probability to a rate increase next month, with investors also factoring in the possibility of further tightening in January and potentially April. Attention now shifts to Thursday’s initial jobless claims and existing home sales figures for additional insight into inflation trends, labor market conditions and the broader economic outlook.