Dollar Surges as Fed Hike Cycle Takes Hold

The US dollar rose to its highest level in nearly two months on Wednesday as investors priced in a rate hike cycle from the Federal Reserve. The central bank's decision last week to increase interest rates has led several officials to flag the possibility of more hikes if inflation does not cool down.

According to Elias Haddad, global head of markets strategy at Brown Brothers Harriman, 'It's a rate story right now.' He noted that the dollar is gaining momentum due to the hawkish Fed hike from last week and comments from officials indicating more tightening in the pipeline.

The greenback extended gains after S&P Global reported its flash US Composite PMI Output Index increased to 58.4 this month, driven by a surge in new orders but strained supply chains and higher prices.

Expectations for at least a 25-basis-point rate hike at the Fed's October meeting rose to about 75% after the data release, up from roughly 53% beforehand. Oil prices also contributed to the dollar's gains as comments from Iran cast doubt on progress in peace talks.