Dollar jumps as hot CPI and Waller comments bring supersized Fed hike into play

The U.S. dollar surged on Tuesday, as traders boosted odds of a supersized Federal Reserve rate hike following stronger-than-expected consumer inflation data and hawkish comments from a central bank official.

It is a third straight session of extreme swings for the greenback in what has been a tumultuous stretch of days for currency market participants. A blockbuster nonfarm payrolls report last Friday sent the dollar to its best day in over four months, only to be followed by a sharp decline on Monday for its worst intraday performance in nearly 10 weeks.

At 15:19 ET (20:19 GMT), the U.S. dollar index, which tracks the world’s premier currency against a basket of six major peers, climbed 0.6% to 102.26.

Half-point rake hike in December?

The October U.S. consumer price index (CPI) report took center stage on Tuesday. 

As per the Bureau of Labor Statistics, headline CPI ticked up 0.4% M/M in October after a 0.6% rise in September. Economists had expected an increase of 0.3%. Core CPI, which strips out volatile food and energy prices, remained steady at 0.3% M/M, coming in higher than the anticipated 0.2% figure.

There were no Y/Y figures published in the CPI data on account of a U.S. government shutdown in October 2025.

Before the inflation update, Fed Governor Christopher Waller had already clouded the mood with a hawkish speech at an event in London. He said he backed hiking rates even if the inflation data had been cooler than anticipated, adding that a deeper half-point rise could be warranted if the data comes in hot.

The combination of the hot report and Waller’s remarks, coming on the heels of Friday’s blowout jobs report, all but locked in odds of the Federal Open Market Committee (FOMC) delivering a rate hike next month. The question now is how big the hike will be. As per the CME FedWatch tool, there is now a nearly 10% chance of a 50 basis point hike being priced in.

"No refuge in today’s CPI report. Very hot numbers across the board. Trimmed mean looks set to be even worse than core. After the strong jobs report last week the only question left for December’s FOMC is one hike or two," Jason Furman, professor of economics at Harvard, said.

Higher rate environments tend to strengthen the dollar.

The greenback’s economic data-sparked rally on Tuesday and last Friday had been preceded by a decline following a sweeping Democratic victory in the U.S. midterm elections last week. Concerns that the party could pursue greater regulation of the artificial intelligence industry and attempt to slow down the proliferation of massive data centers had weighed on the dollar, as any curtailment of the AI boom could hit U.S. economic growth and take the shine off the currency.   

"Our conceptual framework for the medium-term direction of the USD in FX markets has rested on three narratives: (1) crude oil prices and the intensity of the U.S.-Iran conflict (positively correlated with the USD), (2) growth in the U.S. relative to the other majors, driven mostly by the U.S.’s AI-investment cycle, and (3) concerns over debt sustainability in France, and in Europe broadly," Thierry Wizman, global FX and rates strategist at Macquarie, said.

"But the last few days have seen trends reverse for (1) and (2), creating tentative conditions for a ’topping’ USD, if not outright weakness if new trends continue to cement," he said.

"Central banks are relevant for FX too, but we see their behavior in the medium term as largely derivative of the three narratives above. For example, the Fed is more apt to hike if U.S. growth is strong. Central banks are all, to varying degrees, sensitive to the price of crude oil, and hence to the intensity of the U.S.-Iran conflict. The (European Central Bank) and (the Bank of England) would be more apt to ease if sovereign stresses in Europe or the UK mount, etc.," Wizman added.

Euro, sterling, and yen under pressure 

Turning to other major currencies, the dollar’s jump on Tuesday weighed on the euro, sterling, and the Japanese yen. 

The euro slipped 0.5% to $1.1163. FX desks in Europe parsed some comments from European Central Bank Chief Economist Philip Lane, who said the future interest rate decisions would depend on how much recent fuel price increases affect wages and other prices. He did not provide any specific guidance on policy actions.

The sterling was down 0.7% to $1.3346.

Over in Asia, the Japanese yen weakened to 158.79 per dollar. Earlier, the Bank of Japan’s (BOJ) Summary of Opinions showed that some policymakers called for accelerating the pace of interest rate hikes given that underlying consumer inflation had reached the BOJ’s 2% target.

"The Bank should decide on the next policy interest rate hike when it is possible without becoming overly cautious," the Summary of Opinions said. 

Ayushman Ojha, Pranav Kashyap, and Jaiveer Shekhawat contributed to this article