Dollar hovers near six-month high as US yields spike

Dollar rose in European trade on Monday against a basket of major rivals, maintaining gains for second day as US treasury yields spiked for new highs. 

Bets are still high the Federal Reserve will raise interest rates by 25 basis points by the end of the year following a batch of bullish data.

The Index

The dollar index rose 0.2% to 105.76 with a session-low at 105.52, after rising 0.2% on Friday, the third profit in four days, marking a six-month high at 105.78. 

The index rose 0.9% last week, the tenth weekly profit in a row, marking the longest weekly profit steak since July 2014. 

US Yields 

US 10-year treasury yields rose 1.6% on Monday, hitting 16-year high at 4.511% and bolstering investments in the dollar.

The gains came after the Federal Reserve hinted strongly at another interest rate hike this year. 

Such a decision came as the Fed prefers to gauge the impact of recent decisions on US data, opening the door for another 0.25% hike before the year end to combat inflation.

Following the hike, the Fed is expected to start cutting interest rates in 2024, but by a slower pace than previous expected.

Fed Chair Jerome Powell asserted that controlling inflation is expected to be a long-term process, which requires high interest rates for an extended duration.

Fed Remarks 

Several Fed officials hinted last Friday at several more interest rate hikes, and said the battle with inflation isn't over yet.

US Rates

Current pricing for a 0.25% interest rate hike in November stands at 25%, which is still rather low.

However, pricing for a 0.25% Fed interest rate hike stands at a higher 41%.