Dollar Hits Two-Week High Amid Oil Price Shock

The US dollar strengthened to a two-week high on Wednesday as investors turned to the greenback amid growing concerns about the economic impact of rising oil prices. The dollar index, which measures the currency against a basket of currencies including the yen and euro, rose 0.11% to 99.76.

Markets are pricing in a 70% chance of a September Federal Reserve hike, up from around 40% a week earlier, according to CME Group's FedWatch tool. The US economy is less exposed to energy shocks than many other major economies, attracting demand at the expense of currencies such as the euro and yen.

George Brown, senior economist at Schroders, expects the European Central Bank to finish its hiking cycle by the end of the year, while the Federal Reserve will likely be just beginning to raise rates. This should widen rate differentials in favor of the dollar and lead to a weaker euro by year-end, he added.

The yen, however, rose 0.45% against the greenback to 159.50 per dollar, after weakening to its lowest since July 31. BOJ governor Kazuo Ueda said consecutive rate hikes could be a possibility, and US Treasury Secretary Scott Bessent voiced strong support for 'decisive' monetary steps to combat yen weakness.