Dollar Soars as Fed Hike Expectations Hit 70%: October Rate Boost Looms

The US Dollar (USD) is gaining strength against its peers due to expectations that the Federal Reserve (Fed) will deliver more interest rate hikes this year. At press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades 0.1% higher near 101.25. This level is close to the two-month high of 101.40 reached last week.

A nearly 70% chance of a Fed interest rate hike in October, as shown by the CME FedWatch tool, has boosted investor confidence in the Greenback's prospects. TD Securities echoes this view, stating that 'an October hike is looking more likely' and that 'the economy can handle more restriction.' The firm expects two more interest rate hikes this year: in October and January.

The labor market has stabilized, with some signs of strengthening, while activity data has been robust. However, inflation remains above target, prompting economists to argue that the Fed will be 'unlikely to regain its confidence in inflation progress before the October meeting.' The evolution of inflation data will determine the extent and pace of future hikes.