Dollar at nearly 18-month high on Fed minutes, slide in euro and sterling

The U.S. dollar strengthened on Wednesday to a nearly 18-month high, helped by Federal Reserve minutes that hinted at more interest rate hikes and a slide in the euro and sterling. The latter currencies came under pressure amid a resurgence in a global bond rout. 

The U.S. dollar index, which tracks the greenback against a basket of six major peers, rose 0.4% to 102.24. The gauge was hovering at its highest level since April 9, 2025.

Fed minutes suggest at least one more rate hike this year

Currency market participants on Wednesday were focused on the minutes of the Fed’s September monetary policy meeting, which showed that most Federal Open Market Committee (FOMC) participants saw another interest rate hike by the end of this year. 

The FOMC last month had unanimously voted to raise the federal funds rate by 25 basis points, marking the first rate hike in over three years. Meanwhile, the FOMC’s updated dot plot had hinted at more hikes this year, and Fed Chair Kevin Warsh at the post-decision press conference had said that getting inflation back down to the central bank’s 2% target remained a significant challenge.

"With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes said.

The minutes also showed that all FOMC participants had supported hiking rates in September. Higher rate environments generally tend to strengthen the dollar. 

The minutes come at a time when odds of another rate hike by the FOMC later this month have fallen sharply since the September hike, driven by some dovish commentary recently from policymakers and data on U.S. economic growth, inflation, and the labor market.

As per the CME FedWatch tool, the probability of the FOMC keeping the target rate steady later this month stood at nearly 83%, down from about 54% a month ago.

Euro constrained by French deficit woes

The greenback was also helped by a slump in the euro on Wednesday. The single currency was down 0.6% to $1.1195. Continental risk sentiment was under pressure amid a deepening fiscal crisis in France and political gridlock in Spain. Benchmark French 10-year borrowing costs have hit levels not seen since the early 2000s. 

France’s deficit is projected to reach 5.4% of gross domestic product (GDP) this year and its public debt is approaching 120% of GDP. The current government last week unveiled its budget bill for 2027, targeting a public deficit of 5% of GDP through proposed spending cuts of 54 billion euros ($60.46 billion). 

France is also facing political uncertainty ahead of a two-round election in April and May next year. Presidential frontrunner Le Pen, of the far-right National Rally, and party leader Jordan Bardella on Tuesday presented their main budget proposals, targeting 140 billion euros in savings by 2032.

"France is veering toward a full-blown civil crisis because of its political polarization, which heretofore had been manifested mainly in the political realm itself, and at the ballot box only. And rather than being isolated events, we think a direct and self-reinforcing causal connection can be drawn between the rise in France’s debt yields and the street riots of the past few days," Thierry Wizman, global FX and rates strategist at Macquarie, said.

"France’s bond sell-off and the social unrest are now operating in a feedback loop, heavily mediated by the country’s political polarization. Traders are likely to react to an intensification of the riots with higher bond yield spreads, but the political actors involved in coordinating and promulgating the riots will only get more encouragement from the appearance of financial stress," he said.

"Ending one crisis will help resolve the other, if that’s possible," Wizman added.

Sterling sheds as UK 30-year gilt yields hit highest since 1998

The global bond rout hit the United Kingdom as well on Wednesday, with the British 30-year yield hitting its highest level since January 1998. The move came a day after Chancellor of the Exchequer John Healey met with the primary dealer firms in the gilt market, the so-called Gilt-edged Market Makers (GEMMs).

"He emphasized the importance of fiscal credibility in a challenging global economic environment, reaffirming the government’s commitment to the fiscal rules and its focus on delivering economic stability, growth and jobs," the UK Treasury said in a statement on Wednesday.

Attendees at the meeting discussed the challenging external environment facing the UK and the global economy, including geopolitical developments and financial market conditions, the Treasury said.

"The Chancellor made clear that he would be in listening mode," the statement added.

The sterling slipped 0.5% to $1.3213.

Rupee falls despite RBI’s hawkish hike

Over in Asia, the Indian rupee was a notable loser, sliding to as low as 97.151 per dollar on the day and posting its worst daily performance since mid-July.

The currency’s sharp drop came despite the Reserve Bank of India delivering a widely anticipated quarter-point rate hike, bringing its benchmark repo rate to 5.50%—its first increase since early 2023.

RBI Governor Sanjay Malhotra adopted a distinctly hawkish stance, shifting policy to "calibrated tightening," raising the FY27 inflation forecast to 5.2%, and explicitly ruling out near-term rate cuts.

However, currency desks noted that because the rate hike was already fully priced in, it provided little defense against the macroeconomic headwinds of triple-digit crude oil and persistent capital outflows from emerging market debt.

"The RBI’s move is a measured response to a more uncertain global environment, with geopolitical tensions adding to inflationary pressures and market volatility," Pinank Shah, CEO at Capital India Finance, said. 

"Since this rate hike was largely priced in, I don’t expect a material impact on credit growth. However, the shift to ‘calibrated tightening’ signals that further rate hikes remain possible," he added.