Dollar Reaches Two-Month High on Hawkish Fed Hike Expectations

The US dollar has reached its highest level in nearly two months, rising to 101.09 after hitting 101.1 on July 29. This increase is driven by investors' expectations of a rate hike cycle from the Federal Reserve, as well as comments from Fed officials indicating further interest rate hikes may be necessary to combat inflation.

According to Elias Haddad, global head of markets strategy at Brown Brothers Harriman in London, 'It's a rate story right now. What's driving the dollar higher is a follow through from the hawkish Fed hike that we got last week and that's just given the dollar some renewed momentum.'

The US Composite PMI Output Index, which tracks manufacturing and services sectors, increased to 58.4 this month, its highest since July 2021, after a 56.0 reading in August. This was powered by a surge in new orders, though strong demand strained supply chains and pushed prices higher.

The dollar index rose 0.54 percent, with expectations of the Fed hiking rates by at least 25 basis points at its October meeting shooting up to about 75 percent after the data release. Oil prices also jumped as comments from Iran cast doubt on progress in peace talks, further fueling gains in the greenback.

The euro was down 0.52 percent at USD1.1386 and on pace for its third straight daily decline, while investors await a high-stakes meeting between Trump and Chinese President Xi Jinping to seek stability in their relationship.