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Dollar hits two-month high as Fed-hike expectations firm
The dollar index rose 0.5% to 101.06, as traders priced an October rate increase of at least 25 basis points at about 70% after PMI data showed output and price pressures.
The US dollar rallied to its highest level in nearly two months on Wednesday, extending gains as investors increasingly expected the Federal Reserve to deliver additional near-term rate hikes, according to Reuters. After last week’s 25 basis point move to a 3.75% to 4.00% target range, several Fed officials signaled they could tighten further if inflation does not cool. Brown Brothers Harriman’s Elias Haddad said the dollar strength was driven by follow-through from the hawkish hike and renewed momentum from Fed commentary, with little other policy or data information in the session.
The move was reinforced by data from S&P Global: its flash US Composite PMI Output Index rose to 58.4 in September, the highest since July 2021, up from 56.0 in August, as new orders surged. The report also pointed to strained supply chains and higher prices, which traders said could keep pressure on inflation expectations.
The dollar’s strength also coincided with a jump in oil prices after Iran cast doubt on progress in peace talks. Reuters reported that Iran’s Supreme National Security Council secretary said the Strait of Hormuz would not be reopened and there would be no negotiations unless Iran’s conditions were met, while another senior Iranian official said diplomacy must continue as Tehran and Washington remain far apart on how to end the war.