Investing.com – The U.S. dollar surged to a one-year high on Thursday, bolstered by consumer inflation data that cast doubt on the extent of Federal Reserve rate cuts. Simultaneously, Donald Trump began filling key positions in his new administration.
At 04:35 ET (09:35 GMT), the Dollar Index—which measures the greenback against six other major currencies—climbed 0.4% to 106.807, its highest level since early November 2023.
Dollar Gains Momentum
U.S. consumer inflation for October came in largely as expected, with headline CPI ticking higher from the previous month and core CPI remaining well above the Federal Reserve’s 2% target.
While the data supported expectations of a 25-basis-point rate cut by the Fed in December, the longer-term outlook for rates became less certain, lending strength to the dollar. This uncertainty is further compounded by Donald Trump’s presidential victory last week. His proposed policies—such as tax cuts and trade tariffs—are widely seen as inflationary.
Trump continued to shape his administration by appointing loyalists to key roles, including Marco Rubio as Secretary of State. Rubio, known for his hawkish stance toward Iran and China, is expected to influence U.S. foreign and trade policies significantly.
“We believe this week’s price action hints at future FX market trends during Trump’s second term,” said analysts at ING. “Brief dollar corrections will likely offer opportunities to enter structural USD long positions at more favorable levels.”
Traders are now closely watching Fed Chair Jerome Powell’s upcoming address, which is expected to shed more light on interest rate trends following last week’s 25-basis-point rate cut.
Euro Under Pressure
The EUR/USD pair slipped 0.2% to 1.0538, marking a one-year low ahead of the eurozone’s growth data release. While preliminary figures indicated slightly faster-than-expected growth in Q3, the bloc’s 0.4% quarterly increase highlights ongoing economic fragility, particularly in Germany.
Germany’s Council of Economic Experts slashed its growth forecasts, predicting a 0.1% GDP contraction in 2024 and lowering its 2025 forecast to 0.4% growth, down from 0.9%.
Adding to the euro’s woes are rising political risks in Germany and concerns over potential U.S. trade tariffs under Trump’s administration. ING analysts commented, “Since November 5, we believe the euro-negative risk premium has become the new normal due to Trump’s foreign and trade agenda.”
Sterling and Yen Update
The GBP/USD rose 0.3% to 1.2664, rebounding slightly from a three-month low. However, sterling remains under pressure from a strong dollar. The Bank of England recently cut interest rates for the second time this year, though policymaker Catherine Mann, a dissenting voice, cautioned that further cuts may be delayed due to persistent inflation risks.
The USD/JPY climbed 0.4% to 156.00, nearing levels that previously triggered intervention by Japanese authorities. Meanwhile, the USD/CNY rose 0.3% to 7.2428, as U.S.-China trade tensions loom large under Trump’s policies.
Australian Dollar Dips
The AUD/USD fell 0.3% to a three-month low at 0.6466 after weaker-than-expected job market growth in October. Reserve Bank of Australia Governor Michele Bullock signaled that interest rates are unlikely to rise further and will remain steady until inflation shows clearer signs of easing.