Dollar advances to highest since May 2025 on Fed hike views

(Bloomberg) -- The dollar strengthened to the highest level in over a year as hot US inflation reading pushed traders to add to bets that the Federal Reserve will raise interest rates.

The Bloomberg Dollar Spot Index surged Wednesday past its November high. The gauge rose as much as 0.4% to the highest level since May 2025. US consumer prices advanced at the fastest pace in five months on rising fuel costs, according to Bureau of Labor Statistics data.

"Hotter than expected CPI has given a boost to the Dollar this morning as traders price in further tightening from the Fed," said Andrew Hazlett, a foreign-exchange trader at Monex Inc.

The dollar has surged nearly 3% for the four-week period ending Oct. 9 to post its longest winning streak since early 2025. The rally has been fueled by traders' rate predictions since the Fed raised rates for the first time in three years last month. That move has been followed by hawkish remarks from central bank officials. The market is now pricing in more than 90 basis points of rate increases in the US.

Elevated oil prices due to the ongoing war in Iran and heightened concern over fiscal and political risks in France have boosted demand for the haven currency. The war has also been lifting global yields. While central bank policymakers in other major countries are also gearing to raise borrowing costs to stem price growth, not all economies can handle the same amount of rate hikes as the US through September.

A widening interest-rate gap is favoring the dollar, with many strategists on Wall Street rethinking their outlook for the US currency. Speculative traders boosted their bullish stance on the dollar in the week through Oct. 6, holding more than $35 billion in wagers tied to the dollar rising, Commodity Futures Trading Commission data show.