The dollar reaches its highest level in 19 months as US interest rate hike bets escalate

The dollar rose to its highest level in 19 months against major currencies during Thursday's trading, supported by increasing expectations that the Federal Reserve will raise interest rates in December, and perhaps early next year, after stronger-than-expected US inflation data and statements by central bank officials in which they expressed concern about continued inflationary pressures.

The dollar index, which measures the performance of the US currency against a basket of six major currencies, rose by 0.15 percent to 103.02 points, its highest level since April 2025. This rise came as traders increased their bets on further monetary tightening, after October data showed inflation accelerating at a pace that exceeded expectations, while Federal Reserve officials did not rule out a larger interest rate increase of 50 basis points.

Expectations for tightening have extended into next year, as some major brokerage firms, including Goldman Sachs, now expect another interest increase early next year, in addition to the likely increase in December.

Markets are awaiting statements from New York Federal Reserve Bank President John Williams, who is scheduled to participate in a discussion session later Thursday, searching for signals regarding monetary policy directions.

Gavin Friend, chief market strategist at National Australia Bank, said that the statements of Federal Reserve officials have become more hawkish following the release of the latest inflation data, which makes any guidance from Williams of interest to traders.

In the currency market, the Japanese yen approached the level of 160 yen to the dollar, a level that raises fears of Japanese authorities intervening to support the currency. The dollar rose 0.04 percent to 159.83 yen, after earlier recording its highest level in more than two months, supported by the widening interest rate differential between the United States and Japan.

The weakness of the yen came after statements by a member of the Board of Directors of the Bank of Japan, Toichiro Asada, in which he warned that raising interest rates prematurely could harm economic growth and lead to a decline in core inflation. Asada, known for his penchant for accommodative monetary policy, opposed the decision to raise borrowing costs to 1.25 percent in September.

On the other hand, the prominent Japanese currency official, Atsushi Mimura, warned that the time has not yet come to forget the authorities’ intervention in the exchange market during the summer, which prompted the dollar to decline against the yen for a short period, before regaining its gains.

Sho Suzuki, a market analyst at Matsui Securities, said that the dollar exceeding the 160 yen level will increase market caution, adding that its continued rise above this level requires further support from the strength of the dollar or a decline in expectations of a Japanese interest rate hike.

Despite these statements, expectations of a Japanese interest rate hike remain; Many analysts polled by Reuters believe that the Bank of Japan may raise interest rates as soon as next month. These expectations were reinforced by the rise in wholesale price inflation in Japan to 7.1 percent on an annual basis during October, compared to 6.8 percent in September.

In other major currencies, the euro rose 0.06 percent to $1.1096, while the British pound fell 0.1 percent to $1.3266. The Australian dollar settled at $0.6847, while the New Zealand dollar fell 0.05 percent to $0.5559.

In the cryptocurrency market, Bitcoin fell 0.63 percent to $73,848.24, and Ether fell 0.49 percent to $2,058.18.

Gold prices fell during Thursday's trading to their lowest levels in more than a week, affected by the rise of the dollar to its highest level in 19 months, after stronger-than-expected US inflation data and statements by Federal Reserve officials strengthened expectations towards tightening monetary policy and raising interest rates next month.

Gold fell in instant transactions by 0.2 percent to $3,981.49 per ounce by 03:10 GMT, after earlier touching its lowest level since November 4th. US gold futures for December delivery also fell 0.3 percent to $3,987.50.

The dollar rose to its highest level in 19 months against a basket of major currencies, which made the precious metal denominated in the US currency more expensive for holders of other currencies, and added pressure on its prices.

Ilya Spivak, head of the global macroeconomics department at Taste Life, said that the gold market witnessed a noticeable decline over the past few days following the release of US inflation data and the rise in expectations for an interest increase, but he pointed out that the markets are still facing difficulty in building on this trend, with prices approaching the level of $4,000 per ounce, which he described as a critical level.

The possibility of the Federal Reserve raising interest rates by 50 basis points next month has risen strongly, after data released on Tuesday showed that inflation in the United States accelerated during October at a pace that exceeded expectations, coinciding with signals from monetary policy makers that they are ready to tighten monetary policy at a greater pace.

Although gold is traditionally considered a tool to hedge against inflation, rising interest rates increase the opportunity cost of holding it, as it is a non-yielding asset, which reduces its attractiveness to investors.

Markets are awaiting the release of the producer price index in the United States on Friday, in search of additional indicators regarding the path of inflation and monetary policy.

In a more balanced reading of expectations, analysts at OCBC Bank said that the risks to gold prices remain mixed in the near term, in light of the continued influence of oil prices, bond yields, and the dollar on its movements. They added that the macroeconomic environment has become less supportive of the yellow metal, but that does not prompt them to adopt a negative outlook towards its prospects in the medium term.

In other precious metals markets, palladium rose in spot transactions 1 percent to $1,037.25 per ounce.

Oil prices fell by more than a dollar per barrel during trading on Thursday, with growing hopes for progress in peace talks related to the war in the Middle East and the Russian-Ukrainian conflict, which strengthened expectations that the geopolitical risks that supported prices over the past months could recede.

Brent crude futures fell $1.14, or 1.2 percent, to $91.62 per barrel by 01:41 GMT, while US West Texas Intermediate crude futures fell $1.04, or 1.2 percent, to $85.49. This came after the two crude oil prices rose in Wednesday’s session, by about 1.4 percent for Brent and 0.6 percent for US crude, after recording their lowest levels in two months on Monday.

Hiroiki Kikukawa, chief strategist at Nissan Securities Investments, said that markets are declining due to expectations indicating behind-the-scenes diplomatic moves to reach a ceasefire between Russia and Ukraine, in addition to expectations that the Iranian war will not escalate before the expected summit between the United States and China next week.

But he pointed out that the continued uncertainty regarding the Strait of Hormuz makes it unlikely that the markets will witness a major collapse in prices.

In this context, Russian and Ukrainian negotiators agreed to a major prisoner exchange during two-day peace talks in Abu Dhabi that ended on Wednesday, despite American mediators indicating continued disagreements over key issues, including territory. Ukrainian President Volodymyr Zelensky said that Kiev hopes to achieve tangible results in ending the war during the current year.

Regarding the Iranian file, Iranian security chief Mohsen Rezaei said that his country would not allow any amount of enriched nuclear materials to leave its territory, warning that any new American strikes would have consequences. Washington had stressed that the nuclear file must be part of any preliminary negotiations aimed at ending the war that has been ongoing for eight months, while American officials reduced the need to carry out additional military strikes.

In terms of market fundamentals, the OPEC+ alliance’s crude oil production jumped during October, led by the significant increase in Saudi Arabia’s production, despite continued shipping disruptions through the Strait of Hormuz.

In the United States, crude oil inventories rose by about 9 million barrels last week, according to preliminary data reported by market sources from the American Petroleum Institute. Official data from the US Energy Information Administration is scheduled to be issued on Thursday, after being postponed a day due to a public holiday on Wednesday.