DXY: Dollar Near Two-Week High Against Major FX Rivals as Fed Hike Bets Hit 93%

Wednesday’s Fed guidance now decides whether the rally has legs to run.

💵 Dollar catches three supporting winds

• The US dollar index DXY traded near a two-week high around 99.70 Tuesday.
• Higher oil prices, rising Treasury yields and weaker appetite for risk all supported the greenback as investors prepared for the Federal Reserve’s latest policy decision.
• Markets now assign roughly a 93% probability to a quarter-point rate increase Wednesday, which would be the Fed’s first hike in more than three years.
• Strong August employment, firmer inflation and renewed energy pressure have dismantled the previous case for leaving rates unchanged.
• The benchmark 10-year Treasury yield hit 5.02% this morning for the first time since 2007. Higher yields make dollar-denominated bonds more attractive, encouraging capital inflows while raising borrowing costs across the wider global economy.

🌍 Major currencies line up against the dollar

• Across the board, EURUSD slipped to $1.1520, meaning one euro bought just under $1.16. The European Central Bank has already tightened policy, but the dollar retained the advantage as US yields climbed and investors sought shelter from weaker equity markets.
• GBPUSD eased to around $1.3490, while USD/JPY advanced to roughly ¥154.70.
• The yen has pulled back from a seven-month high ahead of Friday’s Bank of Japan meeting, where policymakers are widely expected to raise their policy rate by 25 basis points to 1.25%.
• USD/CAD traded near C$1.3915. Rising oil would normally support the Canadian dollar because Canada is a major crude exporter, but broad US dollar strength and higher Treasury yields outweighed that benefit.

🏦 The hike may be the easy part

• Because Wednesday’s move is almost fully priced, the dollar may react more strongly to Fed Chair Kevin Warsh’s language than to the expected hike itself.
• A signal that a December hike remains in play could extend the rally; cautious guidance may encourage traders to take profits after buying the expectation.
• Economists anticipate at least one additional increase by the end of March 2027. However, some analysts argue the wider economy does not justify substantially more tightening.