DXY Hits 19-Month High: Was the ‘Dollar Is Dying’ Crowd Wrong?
The US dollar reached a 19-month high on Wednesday, with traders betting the Federal Reserve will raise interest rates again in December.
The US Dollar Index (DXY), which tracks the dollar against six major currencies, climbed to about 102.9, its highest level since April 2025. This marks a sharp reversal from early 2025, when the dollar fell more than 10%—its worst start to a year since 1973.
The resurgence is driven by hot inflation data, with the Bureau of Labor Statistics reporting consumer prices rose 0.4% in October, exceeding economists' expectations of 0.3%. This has pushed the Fed toward higher interest rates, which attract capital into the dollar.
Fed Policy Shift
The Federal Reserve already raised rates in September, its first increase since 2023. Now, Fed Governor Christopher Waller is signaling a more aggressive approach.
Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.
CME FedWatch puts the odds of a December 9 hike at 87%, reflecting market expectations for continued tightening.
Impact on Markets
The dollar's comeback is affecting various markets. Gold holders are feeling the pinch, with spot gold falling nearly 1% to $3,992.43 an ounce. American borrowers are also facing challenges as Treasury yields have topped 5% this week, while households carry record credit card balances.
Brown Brothers Harriman's Elias Haddad told Reuters that the dollar's gains rest largely on a hawkish shift in rate expectations. Some analysts also attribute this year's dollar strength to safe-haven buying during the US-Israeli war on Iran.
However, Harvard economist Kenneth Rogoff's warning from the 2025 slide still looms over the currency's future. The Fed announces its decision in four weeks, on December 9, which will likely determine the dollar's next direction.
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