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(Bloomberg) -- The dollar wrapped up its best month since March after the Federal Reserve’s renewed focus on taming inflation pushed interest-rate expectations and US bond yields higher. The Bloomberg Dollar Spot Index has risen nearly 2% in September, eking out June’s advance. The gauge ended higher Wednesday despite slipping immediately after the Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose less than expected. Long-dated US Treasury yields also climbed to multi-decade highs. “The softer than anticipated PCE numbers are pressuring the dollar and indicate that an October hike from the Fed is more or less off the table, but a hike for December is still live,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “It has been a good month for the dollar and we expect that to continue as the Fed continues their fight to restore price stability.” Traders pulled back their expectations for the Fed to raise rates in October after Wednesday’s data, while fully pricing in a December hike. Overall for the next 12 months the markets see about 90 basis points of monetary tightening from the Fed, which is buoying the greenback. Solid US economic data and heightened inflation risks have been lifting the currency and pushing Treasury yields higher. “The focus turns to the more relevant September employment” slated for Friday, according to Alex Cohen, a strategist at the Bank of America. The rally that followed the Fed’s first rate hike in three years continues to be fueled by policymakers’ hawkish remarks. Fed Governor Michael Barr on Tuesday reiterated his warning that more rate increases will likely be needed to slow inflation. Similarly, New York Fed President John Williams said one more rate hike “may be appropriate late this year to support a timelier return of inflation to target.” The war in Iran has kept energy prices elevated and pushed Treasury yields to historical peaks, with the 30-year reaching the highest level since 2002 this week. On Wednesday, Goldman Sachs economists shifted their forecast for rate hikes from October to December, taking into consideration the PCE data and comments by Fed’s Williams. Widening interest-rate differentials and robust US economic growth are forcing some dollar bears to rethink their positions. Morgan Stanley recently abandoned its long-held view that the dollar will weaken in the second half of 2026. Deutsche Bank, however, is sticking to its view, forecasting the dollar will fall roughly 3% versus the euro by the end of the year. All Group-of-10 currencies except the yen have weakened against the dollar in September. The rising risks of Japanese authorities stepping into the foreign-exchange market and expectations of more rate hikes from the Bank of Japan are supporting the yen. Options pricing shows traders favor the greenback across tenors. So-called risk reversals, a measure of bullish versus bearish demand, are near their strongest pro-dollar levels since June. At the same time, some indicators started signaling the dollar’s run may be tiring. A measure of the greenback’s momentum climbed above 70 on Tuesday, indicating it might be overbought, and was in that territory on Wednesday. “We think the dollar is beginning to look stretched,” said Noah Buffam, strategist at CIBC Capital Markets. --With assistance from Vassilis Karamanis and David Watkins. (Updates pricing and adds Goldman Sachs’ new interest-rate forecast in seventh paragraph.) More stories like this are available on bloomberg.com ©2026 Bloomberg L.P. Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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