Dollar Dominance: The Fed's Influence on Global Currencies

The U.S. dollar hit a two-month high against major currencies following expectations of Federal Reserve rate cuts. Economists anticipate slower pace of cuts, with a strong dollar impacting yen and euro. Economic resilience and slightly higher inflation were key factors in changing trader attitudes.

The U.S. dollar surged to a two-month peak against major currencies as investors speculated on the Federal Reserve's potential rate cuts, drawing the yen nearer to the critical 150 per dollar threshold. The euro stayed weak, hovering near its lowest since August before the upcoming ECB meeting.

Robust U.S. economic data indicated moderate resilience and higher-than-anticipated inflation in September, prompting traders to moderate expectations of large Fed rate cuts. After a significant 50 basis points reduction at its last meeting, the focus has shifted to a more gradual approach, strengthening the dollar.

With a predicted 89% probability of a 25 basis points cut in November, and an overall 45 basis point decrease for the year, the dollar index approached highs not seen since August. Fed Governor Christopher Waller emphasized caution with future cuts, citing recent economic disruptions like the Boeing strike and hurricanes affecting employment figures.

(With inputs from agencies.)