US dollar perched at 2-month high as hot PMI fuels inflation fears

The US dollar reached a two-month high on Thursday, fueled by a robust manufacturing report that heightened concerns about inflation and rate hikes by the Federal Reserve. The dollar's strength also pushed the euro to a two-month low and the British pound to a three-month low. A weak Treasury auction contributed to higher yields across the yield curve, further boosting the dollar.

The dollar index hovered near a two-month peak at 101.1. A higher-than-anticipated purchasing managers index report intensified price worries, while a poorly received auction of five-year US Treasury notes led to increased bond selling, with yields surpassing 5% for the first time since 2007. Inflation risks and robust economic growth suggest the Fed may implement further rate hikes, according to Governor Michael Barr.

Chris Weston, head of research at Pepperstone, noted that the US dollar remains attractive due to the US economy's strength and aggressive Fed rate-hike expectations. Rising inflation concerns and the geopolitical tensions, including Iran's president's vow of non-negotiation and the US export ban on diesel, have also contributed to inflation risks.

The Japanese yen hovered near a three-week low, with traders watching for potential intervention following the Bank of Japan's rate hike to a 31-year high. Meanwhile, Australia's dollar slipped slightly ahead of the latest jobs data, and the New Zealand dollar remained flat. Chinese President Xi Jinping's first US visit in three years is also being closely watched as tensions persist over trade, technology, Taiwan, and Iran.