Dollar jumps to near two-month high on Fed outlook, inflation concern

The US dollar surged to its highest level in nearly two months on Wednesday, driven by expectations of a near-term Federal Reserve rate hike and concerns over inflation. Following the Fed's 25 basis point rate hike last week, several officials have indicated a likelihood of additional rate increases if inflation does not ease. Fed Governor Michael Barr noted that the central bank had taken a crucial step to recalibrate short-term borrowing costs and was likely to implement further interest rate hikes.

The dollar's strength is attributed to the continuation of hawkish Fed policy, as indicated by recent comments from officials signaling more tightening ahead. The dollar index rose 0.51% to 101.06, its highest since July 29, after S&P Global reported that the flash US Composite PMI Output Index increased to 58.4, its highest since July 2021.

This upward trend is fueled by surging new orders, despite strained supply chains and rising prices. Meanwhile, tensions in the Middle East have lifted oil prices, further supporting the dollar's gains.