Dollar Edges Lower as Fed Hike Bets Recede

The dollar Index fell nearly 0.4% to 101.8 on Monday, reversing some of Friday’s 0.7% rally, its largest daily gain in nearly six months. The greenback came under pressure amid declining oil prices, while the AI-driven market rotation lost momentum. Last week, a Democratic sweep of Congress last week prompted investors to price in the possibility of tighter regulation and potential constraints on AI-related capital expenditure. Meanwhile, markets are turning their attention to this week’s CPI and PPI releases, which are expected to signal a moderation in both monthly headline consumer and producer inflation. Against this backdrop, market-implied odds of another 25bps Fed rate hike next month currently stand at around 80%. The dollar weakened broadly, recording its steepest losses against the Australian dollar, euro and British pound.

The US dollar index slipped below 102 on Monday, paring gains from the previous session when stronger-than-expected jobs data bolstered bets for a Federal Reserve rate hike in December. Nonfarm payrolls rose by 165,000, more than double the 65,000 forecast, while the unemployment rate edged down to 4.1%, highlighting the resilience of the labor market. Markets are now pricing in an approximately 81% probability of a Fed rate increase in December, up from 71% before the employment report. In recent Fed commentary, San Francisco Fed President Mary Daly indicated that further rate hikes may still be necessary despite the recent tech stock selloff. Investors are now turning their attention to key US inflation data due this week for additional clues on the monetary policy outlook, with the CPI report scheduled for Tuesday and the PPI figures expected on Friday.

The US dollar index rose 0.6% to 102.2 on Friday, extending gains after October employment data significantly exceeded expectations. Nonfarm payrolls increased by 165,000, more than double the 65,000 forecast, while the unemployment rate edged down to 4.1%. Job gains were broad-based, led by professional and business services and healthcare, reinforcing evidence of a resilient labour market supported by consumer spending and business investment. The stronger figures strengthened expectations that the Federal Reserve will maintain a restrictive monetary stance, with investors anticipating another interest rate increase in December to contain inflation. Policymakers will receive one more employment report and a full set of inflation data before their next meeting. The dollar also benefited from increased safe-haven demand amid a global equity selloff driven by concerns over AI valuations and tighter regulation.