Dollar Holds Firm Amid Hawkish Fed Expectations and Rising Treasury Yields

The US dollar held its four-week high at 101.425 as investors weighed the possibility of a Federal Reserve interest rate hike this week, despite falling oil prices easing some immediate inflation concerns.

Markets now assign a nearly 40% probability to a quarter-percentage-point rate increase, up from around 20% one week earlier, according to LSEG data. Traders place the probability of an increase by September at almost 95%.

The dollar index remained close to its strongest level since July 1, with the euro edging 0.05% higher to $1.1370 and sterling gaining 0.1% to $1.330. The Japanese yen continued to weaken, trading at 163.745 per dollar after reaching a 40-year low of 163.99 during the previous week.

Nomura's head of G10 foreign-exchange strategy Dominic Bunning noted that higher US Treasury yields had been a powerful factor behind the dollar's advance. However, he cautioned that traders may have become overly confident in an imminent rate increase, and a less hawkish outcome could force investors to reduce large bullish positions in the dollar.