Dollar Dominance: U.S. Economic Outperformance Revives Greenback Strength

The U.S. dollar reached a two-month high against major currencies as the Federal Reserve remains cautious on monetary easing. Strong job data reduced expectations of immediate rate cuts. The euro and yen weakened against the dollar, with the U.S. economy showing significant strength compared to global peers.

The U.S. dollar held near a two-month peak, bolstered by market sentiment favoring a reserved approach from the Federal Reserve on monetary easing, despite an impending inflation report. The dollar index, measuring the currency against six rivals, remained steady after reaching August highs, reflecting revised expectations of interest rate cuts following strong jobs data.

Economists anticipate September's consumer price index (CPI) to show core inflation maintaining a 3.2% year-on-year rate. Meanwhile, the euro is at its weakest since mid-August, and the dollar is near its strongest against the yen in the same timeframe, driven by the robust U.S. economic performance termed as "U.S. exceptionalism trade" by analysts.

San Francisco Fed President Mary Daly expressed more concern about labor market impacts than inflation resurgence. Markets see an 80% probability of a quarter-point rate cut in the upcoming policy decision, down from 85%. The dollar index remained almost unchanged, while the euro, Australian, and New Zealand dollars showed slight declines against the greenback.

(With inputs from agencies.)