Dollar Towers at Near 2-Month High

The dollar index held above 101 on Thursday, hovering at its highest level in almost two months as stronger-than-expected economic data heightened inflation concerns and reinforced expectations for further policy tightening. S&P Global data showed US private-sector activity expanded at its fastest pace in more than five years in September, with both the services and manufacturing sectors improving while facing stronger inflationary pressures. Several Federal Reserve officials have also reaffirmed support for last week’s rate increase while warning of persistent inflation risks. Markets are now pricing in around a 70% chance of a Fed rate hike in October, up from 55% a day earlier. Meanwhile, uncertainty surrounding US-Iran negotiations continued to keep oil prices elevated, adding further pressure to inflation expectations.

The dollar index rose more than 0.4% to above 101 on Wednesday, reaching an eight-week high after data showed US business activity expanding at its fastest pace in more than five years, fueling expectations of further Fed rate hikes. The S&P Global flash US Composite PMI climbed to 58.4 in September, marking its strongest reading since July 2021 and indicating a sharp acceleration in economic activity. Meanwhile, Brent crude rose above $100 a barrel, ending a five-session losing streak. Traders are now pricing in a nearly 60% chance of another 25 bps rate hike next month, following last week’s increase, while the odds of another move in December stand at around 48%. Markets were also monitoring developments in efforts to end the war with Iran. Investors are watching for progress in US-Iran talks, which could improve risk sentiment.

The dollar index climbed to around 100.9 on Wednesday, reaching its highest levels in eight weeks as hawkish comments from Federal Reserve officials bolstered bets for additional interest rate hikes this year. Richmond Fed President Tom Barkin warned on Tuesday that inflationary shocks could take time to fade, with a risk that elevated price pressures may become entrenched. Boston Fed President Susan Collins also said in a LinkedIn post that she supported last week’s rate hike amid concerns that future inflation could remain above the 2% target. Markets are currently pricing in roughly a 54% probability of another Fed rate increase in October. On the geopolitical front, oil prices extended their decline for a sixth consecutive session after President Donald Trump said US officials had a “very good” meeting with Iranian envoys, easing inflationary concerns and reducing safe-haven demand for the dollar.