Dollar Rises Ahead of Expected US Federal Reserve Rate Hike

The US dollar has been trading near multi-week highs as market participants expect a Federal Reserve decision to raise interest rates for the first time in a series of possible hikes. The dollar has gained against several currencies, including the yen and New Zealand dollar.

Kirstine Kundby-Nielsen, senior FX analyst at Danske Bank, notes that even though a hike is close to being fully priced, some dollar strength could still be seen if interest rates are raised. The euro was trading near Monday's one-month low of US$1.1523.

The pound has also been affected by British inflation accelerating to a five-month high in August, which may influence the Bank of England's decision to leave rates steady. Meanwhile, traders see an 80% chance that the Bank of Japan will hike rates on Friday and have priced in two 25-basis-point hikes by the end of January.