Dollar Hits Two-Month High as Inflation Fears and Rate Hike Bets Intensify

The US dollar continues to hold strong at two-month highs as investors bet on further interest rate hikes by the Federal Reserve. A strong manufacturing reading has reignited inflation fears, pushing markets to reprice rate-hike bets.

A weak Treasury auction sent yields higher, providing fresh impetus to the US currency. The dollar index held onto a two-month high at 101.08, while the euro and sterling struggled near two- and three-month lows, respectively.

The strong-than-expected purchasing managers' report fanned new price concerns, and a poorly received auction of five-year U.S. Treasury notes triggered a fresh round of bond selling. Five-year yields crossed 5% for the first time since 2007.