Dollar Hits Two-Month High as Higher Yields Offset Reduced Fed Hike Expectations

The US dollar held near its two-month high on Thursday due to higher US Treasury yields. The rise in yields is partly driven by concerns over persistent global price pressures stemming from the Middle East war. However, data showing US inflation rose less than expected in August reduced expectations for a Federal Reserve rate hike this month.

The euro was marginally lower at $1.1330 against the dollar in the early Asian session, having clocked a loss of nearly 2.5% in September. The sterling was flat at $1.3264 after having slid 2.1% last month, similarly weighed down by a stronger greenback.

Ray Attrill, head of FX strategy at National Australia Bank, noted that 'There's a little bit of comfort to be drawn from the (US PCE) numbers... I think the market's been right to moderate somewhat its expectations for a ⁠back-to-back Fed ​hike... but I don't think it necessarily ⁠means there aren't still more Fed hikes ahead.'

The yen fell 0.2% to 157.82 per dollar, while the Australian and New Zealand dollars also weakened due to reduced expectations of near-term rate hikes from their respective central banks.