The US Dollar climbed to a one-year high against a basket of major currencies on Thursday, extending its recent rally as traders priced in a more hawkish Federal Reserve. The Dollar Index (DXY) rose above 107.00 for the first time since November 2023, driven by stronger-than-expected US retail sales data and comments from Fed officials signaling no urgency to cut rates.
Dollar Strength Broadens
The greenback gained across the board, with the EUR/USD pair slipping below 1.0500 for the first time in over a year. The move was fueled by US retail sales rising 0.4% in October, exceeding the 0.3% consensus estimate, according to the Commerce Department. Reuters reported that the data reinforced the narrative of a resilient US economy, reducing the likelihood of a December rate cut.
Also read: Gold Prices Plunge as 'Warsh Fed' Shockwave Strengthens US Dollar
Fed Governor Christopher Waller said on Wednesday that the central bank should proceed “carefully” with further policy easing, given the strength of the labor market and sticky inflation. His comments pushed Treasury yields higher, with the 10-year note yielding 4.45%, providing additional support for the Dollar.
Bank of England Holds, Pound Slides
The British Pound fell 0.6% against the Dollar to trade near $1.2620 after the Bank of England voted 8-1 to keep its benchmark interest rate at 5.25%. The lone dissenter, Swati Dhingra, voted for a 25-basis-point cut, marking the first split in favor of easing since August. The BBC noted that the decision came as UK inflation eased to 1.7% in September, below the BoE’s 2% target, raising questions about how long the central bank can maintain its restrictive stance.
Also read: New Zealand Dollar Holds Steady as Markets Await Fed Rate Decision
BoE Governor Andrew Bailey said during the press conference that the committee would take a “gradual” approach to loosening policy, but acknowledged that inflation risks were becoming more balanced. Markets now see a 70% probability of a rate cut in February 2025, up from 50% before the decision.
What This Means for Traders
The diverging policy outlooks between the Fed and the BoE are creating clear trading opportunities. The Dollar’s strength is likely to persist as long as US data remains resilient, while the Pound may face further headwinds if UK economic growth falters. The next key test for the Dollar will be the release of the Fed’s November meeting minutes next week, which could provide additional clues on the rate path.
For GBP/USD, the 1.2500 level is the next major support, with a break below that opening the door to the October 2023 low around 1.2050. Resistance sits at 1.2800, a level that has capped rallies since September.
Frequently Asked Questions
Why did the US Dollar hit a one-year high?
The Dollar strengthened on expectations that the Federal Reserve will keep interest rates higher for longer, supported by resilient US economic data.
What did the Bank of England decide on rates?
The Bank of England voted 8-1 to hold its benchmark interest rate at 5.25%, with one member dissenting in favor of a cut.
How did the British Pound react to the BoE decision?
The Pound slipped against the Dollar and the Euro as traders viewed the hold as dovish, given the dissenting vote for a rate cut.
What is the next key level for GBP/USD?
The 1.2500 level is the next major support, with a break below opening the door to the October 2023 low around 1.2050.
Will the Fed cut rates in December?
Markets have reduced the probability of a December rate cut to around 30% following strong US retail sales data and hawkish Fed comments.
