FOREX-Dollar hits fresh 18-month high as hot inflation boosts Fed hike expectations

The US dollar hit an 18-month ‌high ​on Wednesday after stronger-than-expected inflation data revived expectations for a Federal Reserve interest rate hike later this month, highlighting concern that price pressures are broadening across the economy. The Labor Department's Bureau of Labor Statistics said on Wednesday that US consumer prices rose sharply in September as gasoline costs surged.

"The ‌higher-than-expected core inflation print raises concerns that energy-driven inflation is spreading to other areas of the economy," said Uto Shinohara, senior investment strategist at Mesirow Currency Management. "October Fed rate expectations jumped...post-release, bringing the meeting more into play."

The US dollar index, a measure of the greenback's strength against a basket of six currencies, rose 0.68% to 102.86, its highest since April 2025, shaking off the previous day's losses. The report overshadowed recent dovish ‌signals from Fed officials, including comments from New York Fed President John Williams that weakened the dollar in the previous session.

On Thursday, Fed Vice Chair for Supervision Michelle Bowman also signaled ‌a wait-and-see approach before raising rates again. Traders now see a 56% chance that the Fed will leave rates unchanged at its October 27-28 meeting, compared with 53% a month ago, while pricing in about 79 basis points of tightening by late 2027, CME Group's FedWatch Tool showed.

"Inflation was hotter. It was more broad-based, so certainly not a one-off type situation, which allows those that are more dovish to ignore it," said Marvin Loh, senior global market strategist at State Street in Boston. "I ⁠think the Fed ultimately ​is going to need to have a serious ⁠conversation around it." The US central bank raised its policy rate by a quarter of a percentage point to the 3.75%-4.00% range last month.

Fed official Thomas Barkin is scheduled to speak later in the day. Additionally, the Fed publishes its monthly ⁠Beige Book. EURO TROUBLES

A host of global finance chiefs are in Bangkok, where the International Monetary Fund and World Bank are holding annual meetings. IMF fiscal affairs chief Rodrigo Valdes said the body has "dialed up" the urgency of ​its call for governments to rein in growing debts, while the IMF's Kristalina Georgieva said the US needs to make fiscal adjustments to put its debt on a more sustainable ⁠path.

French bonds have been among the worst hit by a recent global selloff, with investors concerned that political jostling ahead of next year's presidential election may hinder efforts to reduce its high deficit. The ECB's Lagarde said at a CNN event in Bangkok ⁠that ​France should solve its debt woes through fiscal consolidation, damping speculation about whether the central bank might start buying French bonds to contain yields.

The euro fell 0.69% to $1.1121, hitting a new 17-month low against the dollar and a fresh 16-month low versus sterling as a rise in oil prices and lingering concerns about France's fiscal health continued to weigh on the single currency. Roberto Mialich, FX strategist at ⁠Unicredit, said the euro could test $1.10 in the near term but was less bearish on the currency into year-end, expecting that "bond yield in the US will probably ease, although the situation in ⁠the euro zone could weigh on the euro."

The Financial ⁠Times reported on Wednesday that British finance minister John Healey is expected to pay for all new giveaways in this month’s budget with higher taxes or spending cuts, rather than more borrowing. The IMF is not recommending that Britain speed up its fiscal consolidation, a senior official of the body said.

Sterling ‌fell 0.58% to $1.3178. The Japanese yen ‌weakened 0.33% to 158.81 per dollar.