Dollar Holds Near Two-Month High Amid Higher Yields and Reduced Fed Hike Expectations

The US dollar held steady near its two-month high on Thursday, supported by higher US Treasury yields. The data showing US inflation rose less than expected in August and downward revisions to July's reading reduced expectations for a Federal Reserve rate hike this month.

Despite the reduction in expectations for a Fed hike, global price pressures stemming from the Middle East war continue to pose a threat to the global economy, as evident from the surge in euro zone inflation.

The euro was marginally lower at $1.1330 against the dollar in the early Asian session, with sterling remaining flat at $1.3264 after having slid 2.1% last month due to Europe's debt and energy worries.

Ray Attrill, head of FX strategy at National Australia Bank, said '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.'