Dollar Gains as US Yield Curve Flattens on Fed Rate-Hike Signals
Fed officials' comments and strong CPI data pushed short-term Treasury yields higher, flattening the 2-10 year curve and supporting the dollar against most activity currencies.
Federal Reserve Governor Chris Waller signaled a willingness to vote for a 50-basis-point rate increase at the December 9 FOMC meeting, tying the move to October consumer-price data that showed a third consecutive month of elevated inflation. The remarks, together with the CPI release, lifted short-dated Treasury yields by 20 basis points and narrowed the 2-10 year spread by 7 basis points, reinforcing expectations that the Fed will move rates into restrictive territory to curb demand.
Analysts note that a bearish flattening of the US yield curve typically benefits the dollar against activity currencies. The Norwegian krone and Swedish krona fell in a stronger-dollar environment, while the Swiss franc also weakened, reflecting the impact of higher US rates.
With a still-tight US labour market, core inflation above target and the Fed poised to act again, the outlook for the dollar remains positive. The DXY index is expected to stay near recent highs and could test resistance around 102.85-103.00 in the coming weeks. Upcoming October producer-price data may further influence the dollar’s trajectory.
"A high technical level at 1.1110 is currently providing the floor for EUR/USD," analyst Chris Turner said, adding that the level represents a 50 % retracement of the March-January rally and may prompt profit-taking on short positions.
Turner expects the euro to remain constrained, noting that while the European Central Bank is likely to match a Fed hike in December, its tightening cycle is expected to be less aggressive. He projects EUR/USD to trade within a 1.1140-1.1200 range for the day.
In Central Europe, Hungarian headline inflation rose to 2.0 % in October, driven mainly by fuel prices, while core inflation held at 2.1 %. Analysts forecast December inflation near 3.0 % and an average of 3.4 % in 2027, suggesting the National Bank of Hungary could keep rates at 5.50 % through year-end with possible cuts later.
Czech headline inflation was confirmed at 2.4 % and core inflation at 3.1 %, slightly below the national bank’s forecast. Projections indicate inflation will climb toward 3 % in December before easing, supporting a cautious stance from the Czech National Bank after its November rate hike.
Overall market volatility has risen, with rates initially falling on lower energy prices before rebounding after the US inflation data. While oil prices have dropped, gas prices remain elevated, posing continued challenges for the region ahead of winter.