Dollar perched at two-month high as hot PMI fuels inflation fears, rate hike bets

The US dollar reached a two-month high on Thursday, buoyed by a strong manufacturing reading that renewed concerns about inflation and speculation of further interest rate hikes. The dollar index hovered near 101.1, while the euro dropped to a two-month low of $1.1378, and the British pound languished near a three-month low at $1.3231.

The dollar index's strength pushed the euro and British pound to their respective lows. The Federal Reserve is likely to continue increasing rates due to rising inflation and a robust economy, according to Governor Michael Barr. Analysts predict a nearly 70% chance of another rate hike at the Federal Reserve's next meeting in October, up from 50% a week earlier.

Rising oil prices, driven by Iran's president's vow not to back down, and President Donald Trump's diesel export ban, further fueled inflation fears. Japan's manufacturing activity slowed in September, while the Australian and New Zealand currencies weakened against the dollar. Meanwhile, the Chinese yuan remained relatively stable amid the imminent visit of Chinese President Xi Jinping to the United States.