Dollar drops slightly from 19-month highs as rate divergence remains in focus
TLT•The dollar edged lower after reaching a roughly 19-month high as inflation data and hawkish Federal Reserve remarks pushed up expectations for rate hikes. Investors also weighed expectations for a less hawkish European Central Bank and Japan’s warnings over yen weakness.
1. Fed rate expectations lift dollar
The dollar eased on Thursday after hitting its highest level in about 19 months earlier in the session. Strong US inflation data and hawkish Fed remarks drove a repricing of the Fed’s rate path and sharply higher short-dated Treasury yields. Fed Governor Christopher Waller said he would support a quarter-point increase at the December 8-9 meeting unless core CPI reached 0.3% or more; some brokerages, including Goldman Sachs, expect another hike early next year.
2. Euro faces policy headwinds
The euro edged down to $1.1086 after touching its lowest level since May 2025. Analysts expect the ECB to stop raising rates after December, while concerns about France’s fiscal trajectory and fading hopes for progress in Ukraine also weighed on the currency.
3. Japan warns on yen weakness
The dollar slipped to 159.71 yen after reaching 159.945, its highest level in more than two months. Japan’s top currency diplomat Atsushi Mimura warned that it was “too early to forget” the country’s summer intervention as the yen approached 160 to the dollar. Bank of Japan board member Toichiro Asada argued against a near-term rate hike, while a Reuters poll showed many analysts expect the next increase as soon as next month.
