Dollar Strengthens as Fed Rate Hike Looms and Eurozone Wage Growth Remains Steady

The US dollar is expected to see a rate hike this week, but the market is more focused on the Federal Reserve's (Fed) future tightening path. The USD has been gaining strength due to persistent U.S. inflation and elevated Treasury yields.

A report from the European Central Bank (ECB) showed that wage growth in the eurozone is expected to remain steady until 2027, with a slight upward trend thereafter. This has contributed to the relative rate picture favoring the USD over the EUR and GBP.

The Fed's interest rate decision on Wednesday will be crucial for the dollar's performance. A one-off hike could limit any shock to the market, while the start of an aggressive tightening cycle would increase rate hike expectations and boost the USD.