Dollar Soars to Two-Week High Amid Energy Price Concerns and Fed Rate Hike Bets

The US dollar rose to a two-week high on Wednesday as investors sought refuge in the currency amid growing concerns about the economic impact of rising energy prices. The greenback tends to benefit from higher oil prices due to the US economy's relative resilience to energy shocks compared to other major economies.

A potential rate hike by the Federal Reserve next week is also a factor, with markets pricing in a 68% chance of an increase as of now, up from around 40% last week. In contrast, the European Central Bank is expected to be near the end of its tightening cycle after next week's widely anticipated rate hike.

Schroders senior economist George Brown said that 'we expect the ECB to finish its hiking cycle by the end of the year, while the Federal Reserve will likely be just beginning to raise rates. That should widen rate differentials in favour of the dollar and lead to a weaker euro.'

The euro fell 0.16% against the dollar to $1.1575, its lowest since August 20, as the yield on the benchmark US 10-year note rose to 4.8182%, its firmest since November 2023.