Dollar Surges on Inflation Fears and Rate Hike Bets

The US dollar held onto its two-month high on Thursday after a strong manufacturing reading and a poorly received auction of five-year U.S. Treasury notes fueled inflation fears and rate hike bets.

A purchasing managers' report showed stronger-than-expected growth, which reignited concerns about rising prices, while the weak auction sent yields higher, providing further impetus to the US currency.

The euro fell near a two-month low of $1.1384, and sterling languished near a three-month low at $1.3240, as the dollar index held onto its two-month high at 101.08.

Fed Governor Michael Barr's comments on Wednesday that the Federal Reserve may need to deliver more rate hikes due to rising inflationary risks and a strong economy added to the market's expectations of a second straight policy tightening next month.