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The U.S. dollar climbed to a nearly two-month high on Wednesday as stronger-than-expected economic data, hawkish Federal Reserve comments and a sharp rise in Treasury yields boosted expectations for another interest rate hike.
The U.S. dollar index, which measures the greenback against six major currencies, gained 0.5% to 101.14, its highest level since July 28. The advance pressured the euro, British pound and Japanese yen.
Expectations for further Fed tightening strengthened after S&P Global reported that U.S. business activity expanded for a fourth consecutive month in September. Growth accelerated to its fastest pace since July 2021, supported by stronger manufacturing and services activity.
Inflation concerns also intensified. S&P Global said average input costs rose sharply, with overall cost inflation reaching its highest level since October 2022 as fuel and transportation expenses increased.
The combination of resilient economic growth and persistent inflation pushed traders to raise bets on another Fed rate hike. CME FedWatch data showed the probability of a 25-basis-point increase in October rising to nearly 69%, up from around 55% a day earlier.
Treasury yields surged alongside those expectations. The benchmark 10-year yield jumped 16.8 basis points to 5.116%, its highest closing level since July 2007. The five-year yield climbed 15.5 basis points to 4.998%, while the two-year yield rose 12 basis points to 4.897%. The 30-year yield advanced to 5.397%.
Fed Governor Michael Barr added to the hawkish outlook, saying risks to achieving the central bank’s 2% inflation target had increased and that further monetary policy adjustments would likely be necessary.
Against the stronger dollar, the euro fell 0.6% to $1.1382 despite improved eurozone business activity. Sterling dropped 0.8% to $1.3243 after UK growth slowed to a three-month low while inflation pressures increased.
The Japanese yen also weakened for a fourth consecutive session, with traders remaining alert for possible intervention by Japanese authorities following recent exchange-rate checks.
