Dollar Hits Two-Week High as Market Bets on 86% Chance of Rate Hike

The US dollar strengthened on Monday as market participants increasingly positioned for a Federal Reserve rate increase this week, spurred by persistent inflation readings and a renewed surge in crude oil prices.

According to CME FedWatch data, market participants are pricing in an 86% likelihood of a 25 basis point interest rate increase at the Federal Reserve's upcoming September 15-16 policy meeting. This comes after last Friday's consumer price index release maintained pressure on Federal Reserve policymakers, with headline inflation remaining steady at 3.4%, while core CPI increased 0.3% on a month-over-month basis.

The dollar index rose 0.55% to reach 99.55, approaching a two-week high, while the euro weakened 0.5% to $1.1500, marking a near two-week low. The Japanese yen retreated modestly on Monday, with the dollar advancing 0.65% to approximately 154.55.

Despite current dollar momentum, Bank of America forecasts range-bound performance through the end of the year, anticipating that the dollar will remain constrained by conflicting messages from Fed officials and a lack of concrete strategy for addressing inflation above the central bank's target.