Dollar Surges to Two-Month Highs on Rising Yields and Tightening Bets

The US Dollar has regained its momentum in recent weeks, reaching new two-month highs. This surge is attributed to rising US Treasury yields and increased bets for further tightening by the Federal Reserve (Fed) in the next few months.

The US Dollar Index (DXY) broke through the 101.00 barrier for the first time since July, posting gains in nine out of the last 12 days. This is partly due to the sharp uptick in US Treasury yields, with 2-year yields approaching 5.00% and 10-year yields advancing to 5.20%, their highest level since June 2007.

The Fed's recent rate hike was seen as a response to persistent inflation rather than a one-off adjustment. Officials warned that another rate increase is likely needed, favoring earlier, gradual tightening over delaying action. The combination of broad price pressures, firm demand, and repeated references to another hike makes further tightening a realistic possibility before the end of the year.

Data from the Commodity Futures Trading Commission (CFTC) shows a sharp deterioration in non-commercial bullish positioning in the US Dollar, with net longs falling to just under 10.6K contracts. This indicates a loss of optimism rather than a fully fledged bearish consensus.