Dollar Strengthens Ahead of Fed Meeting Amid Eased Inflation Concerns

The US dollar has strengthened to near a one-month high as investors weigh the likelihood of a Federal Reserve interest rate increase at this week's policy meeting. Despite falling oil prices that have eased some inflation concerns, the greenback remains well-supported due to low buying in short-dated US Treasuries.

According to CME FedWatch, the probability of a 25-basis-point rate increase at this week's meeting has risen to 36.3%, up sharply from 16% a week earlier. Markets are also pricing in an 81% probability of a rate increase at the September meeting.

Mahjabeen Zaman, Head of Foreign Exchange Research at ANZ Bank, stated that an unexpected rate increase would further strengthen the dollar, particularly against lower-yielding currencies such as the Japanese yen and the Swiss franc.