Dollar Strengthens Amid Rising Inflation Fears and Rate Hike Bets

The US dollar has reached a two-month high due to strong manufacturing data and rising inflation fears. A recent purchasing managers' report showed higher-than-expected growth, which has led traders to bet on more rate hikes from the Federal Reserve.

This has pushed the euro to a two-month low of $1.1378 and sterling to a three-month low of $1.3231. The dollar index, which measures the US currency against a basket of peers, held near a two-month high at 101.1.

The strong economy and rising inflation risks have led some experts to believe that the Federal Reserve will deliver more rate hikes. 'Given the relative strength of US growth and increasingly aggressive Fed rate-hike pricing, the US dollar continues to stand firm in its attraction to own,' said Chris Weston, head of research at Pepperstone.

The recent Treasury auction sent yields higher across the curve, further supporting the strong dollar. The five-year yield crossed 5% for the first time since 2007, and traders now see a nearly 70% chance of another increase when the US central bank next meets in October.