Dollar Rallies to Near Two-Month High on Rate Hike Expectations

The US dollar has surged to near a two-month high due to growing expectations of a Federal Reserve rate hike. Since the central bank increased rates by 25 basis points last week to between 3.75% and 4.00%, several Fed officials have signaled that more rate increases may be necessary if inflation does not cool.

According to Michael Barr, a Federal Reserve Governor, the US central bank 'took an important step' last week to 'recalibrate' short-term borrowing costs in order to bring down inflation, and will likely need to deliver further interest rate hikes.

The dollar has gained 0.51% as its index rose to 101.06 after hitting a near two-month high of 101.23 on Wednesday. The greenback's strengthening was also fueled by a rise in oil prices following Iran's casting doubt on progress in peace talks, and the US central bank's need to 'be careful' about treating energy shocks as temporary.

Meanwhile, the euro has weakened to $1.1389 after S&P Global reported that the region's economy showed unexpected signs of health despite conflicts driving up energy costs for firms and households.