U.S. Dollar Hits Two-Month High as Markets Price In Another Fed Rate Hike

U.S. dollar index DXY reaches a two-month high as markets assess inflation concerns

The U.S. dollar has reached a two-month high as persistent inflation concerns strengthen expectations for another Federal Reserve interest-rate increase, according to Coin Bureau.

The dollar index, or DXY, reached 100.89, its highest level since July 30, Coin Bureau reported. The move comes after the Federal Reserve raised its benchmark interest rate to 3.75%-4.00% last week, its first rate increase since 2023.

Inflation Keeps Fed Policy in Focus

Coin Bureau said the latest dollar move reflects growing bets that the Federal Reserve could raise interest rates again as inflation remains above the central bank's 2% target.

The Fed's September policy statement said inflation remains elevated and that its latest rate increase was intended to support a more timely return to the 2% goal.

The central bank's latest economic projections also show that policymakers continue to see inflation risks as elevated. The September projections put median 2026 PCE inflation at 3.7%, while the median federal funds rate projection for the end of 2026 was 4.1%.

Those projections leave room for another rate increase this year, although the timing remains dependent on incoming economic data and the Fed's assessment of inflation and employment conditions.

Markets Price Another October Increase

According to Coin Bureau, CME FedWatch placed the probability of an October rate hike at 53%.

That figure is broadly consistent with markets pricing reported after the Fed's September decision. Reuters reported on Sept. 22 that traders were pricing a 53.1% chance of another rate increase at the Fed's next meeting, while the dollar index had reached a two-month high of 100.66 during that session.

Other market expectations remain divided over the timing of any additional increase. Reuters reported that Goldman Sachs expected a 25-basis-point hike in October, while several other major banks anticipated the next increase in December.

Dollar Strength and Monetary Policy

The dollar's recent performance reflects the close connection between currency markets and expectations for U.S. monetary policy. Higher interest rates can influence demand for dollar-denominated assets, while changing expectations for the Fed's policy path can quickly affect foreign-exchange markets.

The latest Fed projections do not guarantee another increase. They represent individual policymakers' assessments of the appropriate policy path and remain financial subject to changing economic conditions.

For now, inflation remains a central consideration. The Federal Reserve's September projections showed median PCE inflation at 3.7% for 2026 before declining to 2.3% in 2027 and 2.1% in 2028.

The next stage for markets will therefore center on incoming inflation and economic data and whether they reinforce expectations for another rate decision later this year.

Writer: Victoria Hale
Technology & Blockchain Writer

Victoria Hale writes about blockchain technology, digital infrastructure, and the intersection of emerging technologies with finance. Her articles explore how new protocols and systems are shaping the evolving digital economy.

She prioritises clarity and accuracy when explaining technical developments to a general audience.