Forex News

ING’s Chris Turner expects the US Dollar (USD) to remain underpinned into early 2027 by strong US growth, inflation above 3% and a hawkish Federal Reserve. He notes that as headline inflation falls back towards the Fed’s 2% target, short-dated US rates should decline.

Fed stance underpins Dollar into 2027

"The dollar should stay supported by strong US growth, high inflation and a Fed threatening to tighten before weakening next spring as inflation falls."

"Our base call assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle."

"That turns in the second quarter, when energy-driven base effects drop out of headline inflation and a return to the Fed’s 2% inflation target sees short-dated US rates move meaningfully lower."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Fed Governor Christopher Waller believes US monetary policy is not restrictive enough.
• A 0.3% monthly inflation reading in October could require more aggressive policy action.
• The Fed Governor sees higher interest rates as necessary to bring inflation down.

Federal Reserve (Fed) Governor Christopher Waller adopts a hawkish tone on Tuesday, arguing that interest rates need to rise to put downward pressure on inflation, according to Reuters.

Key takeaways

0.3% US Oct monthly CPI would suggest inflation moving away from target, need more aggressive policy action.

I don’t think we’ll see broad-based productivity gains from AI for a while.

Real rates have to rise to maintain level of restrictiveness in monetary policy.

Policy has been not nearly as restrictive as I thought.

We need to raise rates to put downward pressure on inflation.

Asked about sharp stock price moves, says not generally important for his view on rates.

Democrat control of congress will act as a check on presidential appointments to Fed.

Market reaction

The US Dollar (USD) rebounds following Waller's hawkish comments, reversing earlier losses, with the US Dollar Index (DXY) trading around 101.70, up 0.05% on Tuesday.

Waller flags risk of larger December hike as inflation worries intensify

Fed’s Waller delivered a notably more hawkish message, with a 9/10 FXS Speechtracker score standing well above the 7.3/10 historical average, underscoring a clear shift toward tighter policy bias. The explicit openness to a half-point FED rate hike in December if October core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a strong reaction function to any sign that inflation is drifting away from target. Emphasis on broad-based price pressures, still-solid growth and labor conditions, and the view that policy has not been as restrictive as previously thought reinforces upside risks for the Dollar and front-end yields.

The FXS Fed Sentiment Index rose by 3.17 points to 145.50, keeping the gauge deeply in hawkish territory and aligning with the elevated FXS Speechtracker score. This combination points to a market narrative of renewed tightening resolve, with expectations shifting toward higher and potentially faster rate increases if incoming inflation data fail to show convincing progress.

• British Pound gives back early gains and drops to near 1.3430 against the US Dollar.
• Fed’s Waller warns of bigger interest rate hike in December if US core CPI sustains or rises further.
• BoE’s Lombardelli says that she won’t rule out an interest rate hike in December.

The British Pound (GBP) gives back its early gains and turns negative at around 1.3430 against the US Dollar (USD) during the European trading session on Tuesday. The GBP/USD pair drops as the US Dollar recovers quickly, following hawkish remarks from Federal Reserve (Fed) Governor Christopher Waller.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, turns almost flat at around 101.65 after clawing back early losses.

During the European session, Fed’s Waller said that further interest rate hikes are needed as inflationary pressures are high and labor market conditions are solid. Waller has also warned ahead of the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT, that a “half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.”

Waller flags risk of larger december hike as inflation worries intensify

Fed’s Waller delivered a distinctly more hawkish tone, with an FXS Speechtracker score of 8.6/10 versus a historical average of 7.2/10, underscoring heightened concern about persistent inflation. The explicit openness to a half-point FED rate hike in December if core CPI prints around 0.3% or higher, alongside support for at least a quarter-point move even on better data, signals a strong bias toward further tightening and a low tolerance for upside inflation surprises. Emphasis on the breadth of price increases, looming producer price pressures, and potentially more persistent energy shocks, despite a solid labor market and still-solid GDP growth, reinforces a narrative of inflation risks dominating the policy reaction function.

The FXS Fed Sentiment Index rose by 1.58 points to 143.91, keeping the gauge deeply in hawkish territory and confirming that this speech marks a meaningful hawkish shift relative to the established baseline. The combination of a higher FXS Fed Sentiment Index level and an above-average FXS Speechtracker score suggests markets should price a higher probability of additional FED tightening, with upside risk to the Dollar as rate expectations are recalibrated.

MUFG/BTMU point out that "October headline and core CPI are expected to slow to 0.3%mom and 0.2%mom, respectively." They caution that "a downside inflation surprise would challenge rate hike expectations and could weigh on the dollar," potentially tempering the recent build-up in Fed tightening bets.

The US Dollar has broadly remained under pressure in the past few weeks, as lower oil prices due to increased hopes of US-Iran deal anchored global inflation expectations.

On the British Pound front, Bank of England (BoE) Deputy Governor Clare Lombardelli has kept the hopes of more interest rate hikes alive. “Wouldn’t rule out rate hike possibility in December,” BoE’s Lombardelli said in an interview with Guardian.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3433. The pair holds a mild bullish bias as it stays above the 20-day Exponential Moving Average (EMA) at roughly 1.3378 and has reclaimed the 50.0% Fibonacci retracement of the latest downswing at around 1.3407. The Relative Strength Index (14) near 56 suggests firm but not overextended upside momentum, hinting that buyers retain control while price action holds above these underlying supports.

On the topside, immediate resistance emerges at the 61.8% Fibonacci retracement near 1.3470, with the 78.6% retracement around 1.3560 forming a higher barrier if bulls extend the advance. On the downside, initial support is seen at the 50.0% retracement at 1.3407, followed by the 20-day EMA near 1.3378; a deeper pullback would expose the 38.2% level around 1.3343 and then the 23.6% retracement at 1.3265, ahead of the structural floor near 1.3138.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Lombardelli flags low-gear economy and keeps December hike in play

Lombardelli’s 6/10 FXS Speechtracker score sits notably below the 7.2/10 historic average, pointing to a slightly less confident tone as the focus shifts to a “low-gear economy” and a cooling labour market. The observation of a “real fall-off in hiring” but limited redundancies underscores a softening demand backdrop without acute stress, which tempers immediate urgency for aggressive tightening.

However, explicitly “not ruling out” a December rate hike keeps a mild hawkish bias alive, as policy optionality is clearly preserved despite data uncertainty. For GBP, this mix of weaker growth signals and an open door to further tightening suggests a nuanced stance: short-term upside may be capped by growth concerns, but downside is cushioned by the ongoing possibility of another hike.

Silver prices (XAG/USD) fell on Tuesday, according to FXStreet data. Silver trades at $52.51 per troy ounce, down 1.58% from the $53.35 it cost on Monday.

Silver prices have decreased by 26.13% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 77.92 on Tuesday, up from 77.63 on Monday.

(An automation tool was used in creating this post.)