The dollar index was at 103.19, just short of 103.36, the highest level since August 8 it hit on Monday
The U.S. dollar was near its highest in more than two months against major currencies on Tuesday, spurred by wagers the Fed will proceed with modest rate cuts in the near term.
A slew of U.S. data has shown the economy to be resilient, while inflation in September increased marginally more than expected, leading traders to cut bets on further big rate cuts from the Federal Reserve.
The U.S. central bank started its easing cycle with an aggressive 50 bp move at its last policy meeting in September but market expectations have shifted to a slower pace of cuts, boosting the dollar.
Traders are now pricing in 89% probability of a 25 basis points cut in November, with 45 basis points of easing overall priced in for the year.
The dollar index was at 103.19, just short of 103.36, the highest level since August 8 it hit on Monday, having risen after Fed Governor Chris Waller called for “more caution” on interest rate cuts ahead.
Fed repricing has been the main engine for the dollar rebound, particularly in relative terms to other central banks, according to Francesco Pesole, FX strategist at ING.
Waller’s comments have contributed to the stronger dollar this week, Pesole said.
The euro remained on the back foot, reaching its lowest level since August 8 at $1.0885 ahead of the ECB policy meeting on Thursday, where the central bank looks set to deliver a back-to-back interest rate cut, a move that seemed unlikely at its last meeting in September.
The pound bought $1.3075 after British labour market data showed pay grew at its slowest in more than two years in the three months to August.
Expectations that sticky inflation would keep the BoE on a gradual rate cut path relative to its peers had underpinned the pound’s outperformance this year but shifting bets have pushed it lower in recent weeks, with the pound down more than 2% against the dollar for the month.
Slowing wages should be the key takeaway from today’s labour market data, according to Jefferies economist Modupe Adegbembo, who expects a quarter-point cut next month.
