Dollar Surges to 2-Month High on Strong US Economic Data and Rate Hike Expectations

The US dollar has reached its highest level in two months due to strong economic data and expectations of further Federal Reserve rate hikes. Two-year Treasury yields have also risen sharply, reflecting renewed inflation concerns.

According to Francesco Pesole, a forex strategist at ING, 'very strong US PMIs, higher oil prices and soft risk sentiment' have contributed to the dollar's rally. However, he notes that the move may be 'starting to look stretched relative to fundamentals.'

The market now sees nearly 70% chance of another rate hike in October, up from 50% a week ago, according to CME Group's FedWatch Tool. The dollar's strength has also led to a decline in the euro and yen, with the greenback trading near a two-month high against these currencies.