Dollar Rises to 2-Month High on Growing Prospect of October U.S. Rate-Rise

By Renae Dyer

The dollar rose to a two-month high against a basket of currencies on Tuesday, lifted by building expectations that the Federal Reserve will raise interest rates again as soon as October.

The Fed unanimously voted to increase rates for the first time in three years earlier this month, increasing the benchmark federal funds rate by 25 basis points to a range of 3.75%-4%. Fed officials also pencilled in another rate rise by the end of the year.

Since the decision, remarks from Fed policymakers have added to expectations that another rate hike is imminent, boosting the dollar.

The DXY dollar index jumped to 101.487, its highest level since late July in Europe's midday trade.

Expectations for near-term U.S. rate hikes are ahead of expectations for other major central banks, which is providing the dollar with an additional lift against several currencies.

The market priced a 73% chance of the Fed raising rates by 25 basis points in October and expected nearly four quarter-point increases by the end of next year, LSEG data showed. By contrast, the probability of a rate hike from the European Central Bank next month was priced at just 40%.

The euro fell to a three-month low of $1.1332, according to LSEG data, also reflecting comments from European Central Bank President Christine Lagarde on Monday where she played down inflation risks and dampened the prospect of another ECB rate rise in October.

The dollar jumped to a 16-month high against the Swiss franc at 0.8349 francs after the Swiss National Bank left rates at 0% and remained cautious on raising rates at last week's meeting. It also hit a 12-week peak against the Canadian dollar.

High oil prices, with Brent crude consistently well above $100 a barrel, are encouraging bets on more U.S. rate increases. Front-month November Brent crude traded at $104.60 on Friday.

"With the U.S. and Iran talks on the sidelines of last week's United Nations General Assembly hitting a dead end, and President Trump rejecting during the weekend an Iranian proposal to reopen the Strait of Hormuz, investors remained concerned about the upside risks to inflation and thereby maintained a steep implied Fed rate path," XM senior market analyst Charalampos Pissouros said in a note.

The dollar benefits from high oil prices, both because the U.S. is an oil exporter and because of the currency's role as a safe haven. Recent strong U.S. economic data have added to the dollar's gains.

Investors will likely assess U.S. data this week for clues on the trajectory of interest rates. A slew of labor market data are due including the Job Openings and Turnover Survey at 1400 GMT, the ADP private payrolls report Wednesday, weekly jobless claims figures Thursday and the key nonfarm payrolls report Friday. The PCE prices data, the Fed's preferred inflation measure, are also due Wednesday.

"Persistent inflation or another resilient labor report would strengthen the case for multiple hikes," BankPro chief executive Paolo Broccardo said in a note.

Monex analysts said in a note that they expect the dollar to remain supported ahead of the data. However, investors rebalancing their portfolios for the quarter-end could "disrupt that temporarily in the coming days, leaving us a little more cautious on direction until October gets underway," they said.

On Tuesday, Fed governors Michael Barr, Christopher Waller and Michelle Bowman, as well as New York Fed President John Williams, are all slated to speak and could offer their views on the prospect of further rate increases.

--Write to Renae Dyer at renae.dyer@wsj.com

(END) Dow Jones Newswires

September 29, 2026 07:28 ET (11:28 GMT)