DXY Extends Gains as EUR/USD and GBP/USD Slide Amid Rising Interest Rate Expectations

The US Dollar Index (DXY) has extended its gains as EUR/USD and GBP/USD slide. This comes on the heels of the Federal Reserve's (Fed) current trajectory, aiming to reach a terminal rate of 4.25%-4.50%. Minneapolis Fed President Neel Kashkari's remarks suggest it is highly likely that the target range will rise by another 25 bps by the end of the year.

Despite a recent increase in odds for a rate hike in October, which now stands at around 53%, the greenback has appreciated against a basket of peers. Historically, higher interest rates in the US have been positive for the euro, but the European Central Bank (ECB) has recently hiked rates and its dovish outlook means it will be behind the curve for an extended period.

Falling energy prices mean that inflation will become less of a concern for the euro area. The Bank of England (BoE) is in a delicate situation regarding interest rates, believing further disruptions to the energy market could result in higher rates. The markets expect there is a 65% chance the BoE will raise rates in November.