December Fed Hike Odds Jump as Dollar Extends Gains
The Fed's December decision is approaching, and the latest jobs and inflation reports suggest another rate hike is all but guaranteed.
Key Points
- Strong October jobs data and hotter-than-expected inflation have dramatically shifted Fed rate expectations, with traders now anticipating a December hike.
- The dollar has extended its recent recovery following the inflation surprise, with the Dollar Index climbing above 102.50, USD/CHF approaching its 52-week high, and EUR/USD falling to a fresh 52-week low.
- Continued volatility in global financial markets could still complicate the Fed's decision, although a sustained risk-off environment could also increase safe-haven demand for the dollar.
The likelihood of another Federal Reserve rate hike in December has increased dramatically following a stronger-than-expected U.S. inflation report on November 10. Combined with last week's surprisingly strong jobs data, the latest figures suggest the Fed has little reason to ease its focus on inflation, making another rate hike in December look all but certain, at least for now.
According to the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) increased 0.4% in October, exceeding expectations for a 0.3% rise. Core CPI, which excludes food and energy, rose 0.3%, also above forecasts for a 0.2% increase.
Although headline inflation moderated from September's 0.6% monthly increase, the latest figures suggest price pressures remain stubbornly elevated. That is particularly important with the Federal Open Market Committee (FOMC) scheduled to meet December 8–9.
The inflation report followed an equally important employment update on November 6. The U.S. economy added 165,000 jobs in October, comfortably exceeding expectations of approximately 65,000. The unemployment rate also declined from 4.2% in September to 4.1%, providing further evidence of resilience in the labor market.
Taken together, the employment and inflation figures have significantly reinforced expectations for another rate hike in December. Before the CPI release, the CME FedWatch Tool indicated a 75% probability of a quarter-point hike and a 25% chance that rates would remain unchanged. Following the inflation report, expectations shifted dramatically.
According to the CME FedWatch Tool, the probability of a quarter-point hike climbed to approximately 86%, while the remaining 14% reflected the possibility of a larger, half-point increase. In other words, the probability of at least a quarter-point hike jumped from 75% to 100%, underscoring just how significantly the latest inflation data changed the outlook for December.
December Fed Outlook Provides Fresh Support for the Dollar
The increasingly hawkish outlook for U.S. monetary policy has provided additional support for the dollar, reinforcing a recovery that began in early September.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, has climbed from around 98.50 in early September to above 102. Following Tuesday's stronger-than-expected inflation report, the index rose 0.57% to 102.23 on November 10 and added another 0.29% on November 11, trading above 102.50.
USD/CHF is one currency pair particularly sensitive to the shifting interest-rate outlook. With the Swiss National Bank's policy rate at 0%, another Fed hike would widen the interest-rate differential between the U.S. and Switzerland, potentially making the dollar more attractive from a carry-trade perspective.
Carry trades involve borrowing or selling a lower-yielding currency to invest in one offering higher interest rates, with traders seeking to profit from the difference. In this case, holding dollars against Swiss francs could become more attractive if U.S. interest rates continue to rise, particularly if global financial markets remain relatively stable.
USD/CHF is currently trading near 0.8328, right at the upper end of its 52-week range of roughly 0.7632–0.8357. That puts the pair within striking distance of its annual high—underscoring the dollar's recent strength against the franc. Expectations for further Fed tightening could help propel USD/CHF to new highs, particularly if improving risk sentiment reduces demand for the Swiss franc as a safe haven.
EUR/USD also illustrates the impact of shifting Fed expectations. The pair had been recovering in recent sessions, even climbing back above 1.1200, before reversing course following Tuesday's stronger-than-expected inflation report. Since then, EUR/USD has fallen below 1.1100 to around 1.1085, marking a fresh 52-week low and its weakest level since spring 2025.
The next inflation update arrives November 13, with the release of the October Producer Price Index (PPI). Barring a significant surprise, the report is unlikely to materially change expectations for a December Fed rate hike.
Could Unforeseen Circumstances Still Change the Fed's Plans?
Despite the dramatic shift in rate expectations, the outlook for December remains fluid. With several weeks remaining before the Fed's December 9 decision, financial-market volatility or other unexpected developments could still influence the central bank's next move.
Recent volatility in global equity markets, particularly technology and artificial intelligence-related stocks, highlights one potential complication. A sustained selloff could tighten financial conditions, undermine business and consumer confidence, and introduce fresh uncertainty about the economic outlook. Under those circumstances, the Fed might prefer to hold rates steady while assessing the broader implications.
However, that same volatility could also support the dollar. As seen at the onset of the Iran war earlier this year, periods of heightened uncertainty can drive investors toward the relative safety and liquidity of U.S. dollar-denominated assets. That could help sustain demand for the greenback even if expectations for further Fed tightening diminish.
The next few weeks should therefore prove critical for currency traders. While the economic data currently favor a December rate hike, a sustained market downturn or an unexpected economic or geopolitical shock could quickly change the Fed's calculus. Such developments could also reshape risk sentiment and will undoubtedly influence the dollar's performance ahead of the December Fed meeting.
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Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
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