Signs that the Fed will press ahead with interest-rate hikes are boosting the dollar.
Traders have taken note of comments from Fed officials citing the need for more rate increases to tame inflation following last week's hike, the first in three years. Richmond Fed President Thomas Barkin suggested yesterday that one hike was not enough to curb inflation. Futures traders anticipate a 53% chance of a rate increase in October, according to CME Group data.
The prospect of higher rates makes it more attractive to hold dollars than, for instance, euros. While the European Central Bank is grappling with the same inflationary pressures as the Fed-notably, high energy prices-it seem less likely to increase rates, analysts say.
"The next few weeks will determine whether either the ECB or the Fed goes for an October hike," ING analysts said in a research note today. "While we still expect the next move from both central banks to come in December, any earlier tightening appears more likely to come from the Fed than the ECB."
The WSJ Dollar Index, which tracks the greenback against other major currencies including the euro, yen and Swiss franc, is at its highest level since July.
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