US FX WRAP: Dollar gains on Waller & US CPI to detriment of G10 FX peers

The Dollar Index saw notable gains, to the detriment of all G10 peers, as hawkish remarks from Waller followed by a hot inflation report gave the Greenback all the impetus it needed. Earlier in the session, the Buck strengthened after Waller’s surprisingly hawkish remarks, in which he said further policy tightening will be needed and that a half-point hike may be warranted in December if October core CPI came in around 0.3% or higher. The CPI report then showed core M/M at 0.3%, above expectations, with headline M/M also topping forecasts, prompting a broad-based hawkish reaction across markets. Money markets now assign a 10% probability of a 50bps Fed hike in December, with a 25bps increase fully priced. Elsewhere, Logan (2026 voter) said it is clear the Fed needs at least two more 25bps rate hikes, and that it may be possible to raise rates more rapidly this winter than the Fed has done so far. As such, participants will look to see whether the camp for a larger December hike grows, or whether Waller remains an outlier.

G10 FX was lower across the board against the Greenback, with the Aussie the laggard, weighed on by risk-off sentiment as well as mixed Chinese data overnight. Currency-specific newsflow was light, with trade dominated by the themes above, although there was some central bank speak. BoE Deputy Governor Lombardelli said a further 25bps rate hike in December is plausible, with every meeting live, but that a decision will depend on developments in the Iran conflict. ECB’s Lane said it would be prudent to hike in December if incoming data do not materially change the outlook. Along similar lines, Kazaks said the ECB may need to tighten in December, while Nagel said a December hike is likely.