Dollar Hits Two-Month High Amid Fed Hike Expectations

The US dollar has reached its highest level in nearly two months, driven by investors pricing in a rate hike cycle from the Federal Reserve. The dollar index rose 0.54 per cent to 101.09 on Wednesday, after hitting 101.1, its highest since July 29.

According to Elias Haddad, global head of markets strategy at Brown Brothers Harriman, 'it's a rate story right now.' He notes that the dollar is gaining momentum following last week's hawkish Fed hike and comments from officials indicating more tightening in the pipeline.

The data release from S&P Global showed the US Composite PMI Output Index increasing to 58.4 this month, its highest since July 2021. This led to expectations of a rate hike by at least 25 basis points at the October meeting shooting up to about 75 per cent.

Oil prices also contributed to the dollar's gain, as comments from Iran cast doubt on progress in peace talks and raised concerns about the Strait of Hormuz being reopened. The euro declined 0.52 per cent to US$1.1386, while the Japanese yen weakened 0.6 per cent against the greenback.