Dollar Holds Two-Month High as Strong PMI, Weak Treasury Auction Stoke Rate-Hike Bets

The dollar clung to a two-month high on Sept. 24 after a stronger-than-expected manufacturing PMI reignited inflation fears and lifted rate-hike expectations. The dollar index held near 101.1, the euro fell to a two-month low of $1.1378, and sterling traded near a three-month nadir of $1.3231. A poorly received auction of five-year U.S. Treasury notes triggered fresh bond selling, pushing five-year yields above 5% for the first time since 2007. Fed Governor Michael Barr said rising inflation risks and a strong economy likely warrant further tightening, which traders read as forward guidance. CME FedWatch shows a nearly 70% probability of another rate increase at the Fed's October meeting, up from 50% a week earlier. Oil rose nearly 4% on Sept. 23, amplifying inflation concerns. The yen hovered near 157.9, near a three-week low.