Dollar Surges Ahead of Fed Rate Hike Decision
The US dollar climbed to its highest level in two weeks on Tuesday ahead of the Federal Reserve's interest rate decision, which is widely expected to be a 25 basis point hike.
Traders are bracing for the Fed's move as it could strengthen the greenback. According to the CME FedWatch tool, there is a 94.5% chance of a rate hike on Wednesday, up from 59% last week.
The rise in rate hike expectations has been driven by inflationary concerns, including spiking oil prices and recent US labor market and inflation data. The U.S. Treasury yield has also surged to its highest level since April 2007 at 5.008%, with the yield on the benchmark 10-year bond rising 4.7 basis points.
The dollar's strength is also being fueled by oil prices, which have extended their weekly jump. The global benchmark Brent crude last rose 2.6% to $108.40 a barrel, while US West Texas Intermediate (WTI) crude advanced 4.1% to $105.56 a barrel.
Despite the Fed's expected rate hike, President Donald Trump has been putting pressure on Fed Chair Kevin Warsh to cut rates. Meanwhile, Interactive Brokers' senior economist José Torres believes that an interest rate hike could ease expectations of price pressure and demonstrate the Fed's commitment to fighting above-target inflation.