The dollar climbed to its highest level in two months on Wednesday as traders priced in higher odds of another Federal Reserve rate hike. The euro sank to its weakest levels since late July, while the yen and the Australian dollar also softened, as markets awaited President Xi Jinping's summit with President Trump in Washington.
The dollar rose to its highest level in two months on Wednesday, driven by expanding bets that the Federal Reserve will press forward with additional interest rate hikes to quell persistent inflation. The Dollar Spot Index advanced 0.2%, following last week's hawkish monetary tightening. Short-end rate markets priced in a 55% probability of a follow-up rate hike in October.
Euro slides to weakest levels since late July
The euro fell 0.3%, languishing at its weakest levels since late July. The single currency faced hawkish Fed expectations alongside domestic political friction, and fears that depleted gas storage across the bloc could reignite winter inflation.
According to Brown Brothers Harriman's Elias Haddad: "US economic outperformance should keep the dollar supported." He added that September S&P Global PMI readings would likely show the US maintaining its growth edge over the Eurozone, UK, and Japan.
Yen and Aussie dollar also under pressure
The Japanese yen fell 0.2% to trade around 157.58 per dollar, hovering near recent troughs in holiday-thinned conditions. Trading desks remained on alert for potential intervention from Japanese authorities following recent central bank "rate checks."
The Aussie dollar underperformed, slipping 0.25% after flash PMI survey data for September showed manufacturing slumping into contraction, raising doubts over the Reserve Bank of Australia's headroom for further rate increases.
Crude pullback and the Trump-Xi summit
Foreign exchange desks drew temporary relief from a sharp pullback in crude prices, which tumbled below $100 a barrel following reports that Saudi Arabia restarted its East-West pipeline, alongside progress in U.S.-Iran talks at the UN General Assembly in New York.
Focus now shifts to Washington, where President Xi's first official visit during Trump's second term is expected to address an extension of the current U.S.-China tariff truce, artificial intelligence notification protocols, rare earth exports, and agricultural purchase quotas. With world leaders converging in Washington and New York, foreign exchange traders are balancing central bank rate paths against high-stakes geopolitical developments.
Source: Investing.com
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