Dollar Strengthens as Rate Hike Bets Return, EUR/USD Tests Key Support

The US Dollar is experiencing its strongest weekly performance in over a month as renewed expectations of another Federal Reserve rate hike shift the interest rate outlook in favor of the greenback.

This development has put downward pressure on the EUR/USD pair, which is now testing key support levels after failing to sustain a rally above 1.0900.

The catalyst for the dollar's rebound is a change in market pricing for Federal Reserve policy. Stronger-than-expected US economic data has prompted traders to price in a higher probability of a rate hike at the next Federal Open Market Committee (FOMC) meeting, with futures markets implying a roughly 30% chance of a 25-basis-point hike.

This repricing has lifted US Treasury yields and widened the yield differential between US and German bonds, making dollar-denominated assets more attractive to yield-seeking investors.