Dollar Holds Two-Month High Amid Inflation Concerns

The US dollar held near a two-month high on Thursday, driven by stronger-than-expected US economic data and revived inflation concerns.

The dollar's gains were led by a stronger-than-expected US manufacturing reading, which has revived concerns about inflation. A poorly received $70 billion five-year Treasury auction then triggered another round of selling across the bond market, pushing yields above 5% for the first time since 2007.

According to CME FedWatch pricing, there is now a nearly 70% chance of an October rate hike, up from around 50% just a week ago. This increased probability has boosted bets on further rate hikes, with some analysts warning that a strong economy and rising inflation risks could require even more aggressive action.

The yen continued to stay near three-week lows against the dollar, despite a jump in Japanese yields after Japan returned from holidays. The pair was around 157.94, while the Japanese market's reopening saw the yield on its benchmark bond rise to a 31-year high.