The dollar climbed to a two-month high, with its index rising to near 100.8 points, supported by expectations of continued tightening of US monetary policy.
The Federal Reserve raised interest rates to a range of 3.75%–4.00%, while bank officials left open the possibility of further tightening if inflation continues to be above target.
The recent decline in oil prices may ease inflationary pressures, but continued high prices for refined products and geopolitical tensions keep inflation risks alive.
The dollar rose to its strongest level in nearly two months during Wednesday's trading, driven by growing investor expectations of continued tightening of US monetary policy and the possibility of another interest rate hike in the near future, at a time when oil prices have begun to retreat from their recent peaks, which could ease some inflationary pressures and reshape market expectations regarding the path of interest rates.
The dollar index, which measures the performance of the US currency against a basket of six major currencies, rose by about 0.31% to 100.85 points during trading, nearing the 101-point level. This coincided with a decline in the euro and the British pound against the US dollar, reflecting increased demand for the dollar due to rising returns on dollar-denominated assets and growing bets on continued high US interest rates.
The Federal Reserve is reshaping dollar expectations.
The Federal Reserve's policy path has become the most obvious factor influencing the dollar's movement during the current period. The US central bank raised its target interest rate by 25 basis points to a range of 3.75%–4.00%, while policymakers have indicated the possibility of another increase before the end of the year.
This view was reinforced by statements from Federal Reserve officials regarding the continued risks of inflation. Susan Collins, president of the Federal Reserve Bank of Boston, said she supported the recent interest rate hike, noting the increased likelihood of inflation remaining above 2% and asserting that a more restrictive monetary policy stance could help bring inflation back to the Fed's target sustainably. However, she did not specify in her statement whether she supported another rate hike.
