Investing.com – The U.S. dollar rose further on Thursday to a yearly high after consumer inflation data raised questions about the scope of the Fed’s interest rate cuts as Donald Trump begins to fill key positions in his modern administration.

At 04:35 ET (09:35 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.4% to 106.807, the highest level since early November 2023.

The dollar continues to push forward

U.S. data was largely in line with expectations, but headline CPI continued to rise from the previous month while remaining well above the Fed’s annual target of 2%, according to data released Wednesday.

While the reading encouraged bets that the Fed would continue to cut interest rates by 25 basis points in December, the longer-term outlook for rates became more uncertain, which helped the dollar.

Added to this uncertainty about likely Fed interest rate decisions is Donald Trump’s victory in last week’s US presidential election, and his likely policy of lower taxes and trade tariffs is widely seen as inflationary.

Trump has pushed to appoint loyalists to key positions, including Marco Rubio as Secretary of State. It is widely believed that the Florida senator is likely to take a tough stance on Iran and China.

“We believe this week’s price action has given us a preview of what’s to come in FX markets in Trump’s second term, with short dollar corrections treated as an opportunity to enter structural long USD positions at more attractive levels,” ING analysts said in note.

The Fed chair’s speech later in the session is likely to provide investors with more guidance on interest rates following the central bank’s decision to cut rates by 25 basis points last week.

Euro exchange rate down

In Europe, rates fell by 0.2% to 1.0538, the lowest level since a year before the publication of the latest report for the euro zone.

Preliminary data in October showed the bloc grew faster in the third quarter than market observers had expected in the previous three months, but quarterly growth of 0.4% showed that the euro zone economy remains feeble and its largest component – the German economy – is in decline. especially feeble.

The German Council of Economic Experts on Wednesday lowered its growth forecasts for Europe’s largest economy for 2024 and 2025, revising the forecast for this year to a decline in gross domestic product by 0.1% from 0.2% and the growth forecast for 2025 to 0. 4%. compared to an raise of 0.9%.

The common currency is also struggling with political uncertainty in Germany and the possibility of tariffs being introduced on Europe by the modern Trump administration.

“We strongly believe that as of November 5, we have entered a phase where a negative euro risk premium will become the new norm, given the risks to the euro area from Trump’s foreign/trade agenda,” ING added.

rose 0.3% to 1.2664, falling to a three-month low of $1.2683, with the surging dollar putting pressure on sterling.

Interest rates were cut last week for the second time this year, but policymakers have suggested further cuts may be delayed.

High inflation in the UK has not been overcome, she said in a speech on Wednesday, and inflation is more likely to exceed than fall below Bank of England forecasts in the medium term.

Mann, the lone dissenter, voted against lowering borrowing costs at last week’s policy-setting meeting and also opposed the initial interest rate cut in August.

Yen is approaching intervention levels

rose 0.4% to 156.00, hitting its highest level in more than three months and close to levels that recently triggered government intervention in the currency market.

rose 0.3% to 7.2428, hitting a three-month high, with sentiment toward China strained by the prospect of high U.S. trade tariffs on the country under the Trump administration.

fell 0.3% to 0.6466, a three-month low, after data showed growth in Australia’s labor market weakened in October after six consecutive months of powerful growth.

The Governor of the Reserve Bank of Australia said interest rates were unlikely to rise further but would remain stable until the bank was confident that inflation would continue to fall.