Dollar Surges as Markets Recalibrate Rate-Cut Bets

The greenback is having a moment. DXY hit a 1.5-week high (+0.39%), riding on two key catalysts: yen weakness and better-than-expected US trade data.

What’s pressuring the yen?

Japan’s stimulus playbook is backfiring. An advisor to PM Takaichi just signaled the BOJ won’t hike rates before March, while flagging a 20 trillion yen (~$129B) supplementary budget incoming. That’s nearly 50% larger than last year’s package—and it’s weighing on debt concerns. USD/JPY climbed +0.68% to a 9.75-month high.

The US side looks tighter than expected

August trade deficit came in at -$59.6B, beating forecasts of -$60.4B (down sharply from -$78.2B in July). Meanwhile, MBA mortgage applications slid -5.2%, with the 30-year fixed creeping up 3 bps to 6.37%.

Fed rate-cut odds just collapsed

Markets are now pricing only a 47% chance of a 25 bp cut in December—down from 70% earlier this month. That hawkish repricing is also hitting gold and silver, despite safe-haven demand from geopolitical uncertainty and central bank hoarding (China’s PBOC added gold for the 12th straight month in October).

EUR/USD bleeding

Euro weakness (-0.23%) mirrors dollar strength, though some losses are cushioned by central bank divergence: ECB is done cutting, Fed still has room to go. Geopolitical noise (Trump-Russia Ukraine draft reports) is also providing minor euro support.

Bottom line: Risk sentiment is shifting. Stronger data + dovish BOJ commentary = tighter financial conditions than markets priced in two weeks ago.