The Dollar Won a Wild Week as Two Rate Hikes Failed to Save the Pound and the Aussie

It was a week that broke the textbook. The US dollar finished higher against six of the seven major currencies, losing only to the Swiss franc, and the dollar index pushed back above 102. Yet the week began with the dollar on the ropes: after Democrats won both chambers of Congress in Tuesday’s midterm elections, the greenback slid to a one-month low and EUR/USD climbed to just under 1.1300, its highest since early October. By Friday’s close the pair was back at 1.1132, barely 30 pips above its October low, and the dollar had posted what Investing.com called its best day since June.

The turnaround came from the jobs market. US employers added 165,000 jobs in October, more than two and a half times the roughly 65,000 economists expected, and above even the highest forecast of 131,000. Unemployment dipped to 4.1%, wages grew 3.1% from a year earlier, and September’s weak 29,000 print was revised up to 60,000 — turning what looked like the start of a slowdown into a one-month soft patch. Futures now price a 74.8% chance of a Federal Reserve rate hike on December 9, the two-year Treasury yield touched 4.54% and the 10-year rose to 4.90%. For anyone learning how data moves currencies, our forex section explains why a strong payrolls report is usually the most powerful single release for the dollar.

The week’s real lesson, though, was that raising rates does not automatically lift a currency. On Tuesday the Reserve Bank of Australia lifted its cash rate to 4.85% in a 6–3 vote, and the Aussie fell 0.45% that day and 2.37% on the week, closing at 0.6865, below 0.70 for the first time since mid-October. On Thursday the Bank of England raised its rate to 4.00% from 3.75% in an 8–1 vote, with Catherine Mann backing a bigger 50-basis-point move, and sterling still fell 0.17% on the day and finished the week 0.28% lower. The difference is what a hike signals: the RBA dropped its explicit tightening bias, so markets read its hike as dovish, while the pound was weighed down by sliding oil prices and hawkish comments from Fed officials. The same logic explains the euro’s problem — eurozone inflation hit 4.0% in October, but almost all of it is energy, up 20.8% on the year, while core inflation is stuck at 2.5%. A hike forced by an energy shock squeezes an economy rather than showing confidence in it.

Positioning adds another twist. The latest CFTC data shows large speculators holding their biggest net-short bet against the euro in 11 years, with record gross shorts, while net-long dollar exposure remains elevated at $35.6 billion. Bears are now eyeing the May low of 1.1074, but crowded trades cut both ways: if Tuesday’s US inflation report comes in soft, the rush to cover those shorts could send EUR/USD sharply higher. Gold, meanwhile, told a different story about fear — it rose 4.92% on the week to $4,065.82, its first weekly gain after three declines, even as the dollar strengthened. The Nasdaq 100’s 6.36% plunge on Thursday, its worst day since 2020, sent investors hunting for safety in both directions at once.

What to watch next: October US consumer inflation lands on Tuesday, with consensus at 0.3% on the month, and producer prices follow on Friday, alongside UK third-quarter GDP on Thursday and euro-area GDP on Friday. The calendar then builds toward the Fed’s decision on December 9 and the ECB’s on December 17. Technically, 1.1100 is the line that matters — a daily close below it opens the door to 1.1050 and then 1.1000, while a push back above 1.1272 would be the first sign the euro is bottoming. With volatility this high, position sizing matters more than direction — our forex tools include calculators for sizing trades on fast-moving pairs. (Not financial advice.)