Dollar Surges Amid Election and Economic Uncertainty

The U.S. dollar reached a 2.5-month high as investors adjusted their expectations for Federal Reserve rate cuts. With an upcoming presidential election, markets are pricing scenarios, including a potential Republican sweep. Economic data continues to defy forecasts, impacting U.S. Treasury yields and influencing currency movements.

The U.S. dollar soared to new heights, reaching a 2.5-month peak on Wednesday as investors recalibrated their expectations for Federal Reserve interest rate cuts. The intense focus on the upcoming presidential election has added layers of complexity to market movements.

Amid an improving economic landscape, the greenback's ascent over the past three weeks reflects shifting sentiment. With a 91% probability of a quarter-point rate cut in November, according to the CME FedWatch tool, the notion of aggressive cuts has waned, affecting Treasury yields and investor strategies.

As the presidential race heats up, the possibility of a Republican-led administration is seen as bullish for the dollar. Meanwhile, Treasury yields continue to pressurize the yen as the yen hit a three-month low, further complicating Japan's economic outlook ahead of its general election.

(With inputs from agencies.)